10-K 1 eaglebldg10k.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 ----------------- COMMISSION FILE NO.: 0-26322 EAGLE BUILDING TECHNOLOGIES, INC. ---------------------------------------------- (Name of Small Business Issuer in its Charter) Nevada 88-0303769 --------------------------------- ------------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 700 East Palmetto Park Road, Boca Raton, Florida 33432 ------------------------------------------------------------ (Address of principal executive offices, including zip code) (561) 391-7899 --------------------------- (Issuer's telephone number) 225 N.E. Mizner Boulevard, Suite 502, Boca Raton, FL 33432 ----------------------------------------------------- (Former name, former address, and former Fiscal Year, if changed since last report) Securities registered pursuant to Section 12(b) of the Act: None None --------------------- ---------------------- (Title of Each Class) (Name of Each Exchange on which Registered) Securities registered pursuant to 12(g) of the Act: Common Stock, par value $.001 per share --------------------------------------- (Title of Class) Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Issuer was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes { } No {x} Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Issuer's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. (X) State issuer's revenues for fiscal year ended December 31, 2002: $2,928,164 The aggregate market value of the Registrant's voting stock held by non- affiliates, based upon the closing sales price for the common stock of $1.40 per share as reported in the Pink Sheets LLC on June 30, 2003, was approximately $8,950,000 based on a total of 6,388,731 shares, which total excludes shares of Common Stock held by each officer and director and by each person known to the Company to own 5% or more of the outstanding Common Stock. Such shares have been excluded and such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. EAGLE BUILDING TECHNOLOGIES, INC. TABLE OF CONTENTS Page PART I ------ Item 1. Business......................................................... 3 Item 2. Properties....................................................... 6 Item 3. Legal Proceedings................................................ 7 Item 4. Submission of Matters to a Vote of Security Holders....................................... 13 PART II ------- Item 5. Market for Company's Common Equity And Related Stockholder Matters................................ 13 Item 6. Management's Discussion and Analysis or Plan of Operations................................. 14 Item 7. Financial Statements and Supplementary Data...................... 16 Item 8. Change in and Disagreements with Accountants on Accounting and Financial Disclosure....................................... 16 PART III -------- Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.............................. 17 Item 10. Executive Compensation........................................... 18 Item 11. Security Ownership of Certain Beneficial Owners and Management............................... 20 Item 12. Certain Relationships and Related Transactions................... 22 Item 13. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................. 23 SIGNATURES ............................................................... 27 1 PART I Forward Looking Statements The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. The forward-looking statements contained in this Form 10-KSB are subject to certain assumptions, risks and uncertainties. Actual results could differ materially from current expectations. Among the factors that could affect the Company's actual results and could cause results to differ from those contained in the forward-looking statements contained herein is the Company's ability to implement its business strategy successfully, which will depend on business, financial, and other factors beyond the Company's control, including, among others, prevailing changes in consumer preferences, access to sufficient quantities of raw materials, availability of trained labor and changes in industry regulation. There can be no assurance that the Company will continue to be successful in implementing its business strategy. Other factors could also cause actual results to vary materially from the future results covered in such forward-looking statements. Words used in this Form 10-KSB, such as "expects", "believes", "estimates", and "anticipates" and variations of such words and similar expressions are intended to identify such forward- looking statements. On February 14, 2002, the Company informed the Securities and Exchange Commission and requested that trading in the Company's common stock be suspended because the Company believed that its financial statements for prior years had to be restated. The Company consented to the entry of a preliminary injunction brought against it by the Securities and Exchange Commission ("SEC") enjoining further violations of the Securities laws and proceeded to revise its financial reports. These events were brought about by the Company's discovery in February 2002 that its CEO, Anthony D'Amato, had falsified reports of its earnings from operations in India for the years 2000-2001 and that these earnings were intentionally fabricated by Mr. D'Amato. Trading in the Company's stock was allowed to resume on March 1, 2002. 2 ITEM 1. BUSINESS -------- General Eagle Building Technologies, Inc. (the "Company") is a Nevada corporation involved in several facets of the concrete masonry products industry, including 1) the manufacture of concrete products manufacturing equipment, plants, and accessories; 2) the wholesale manufacture of masonry materials for the construction trade; and 3) the development of affordable housing projects utilizing proprietary masonry construction methods. The Company also has a holding in an allied building materials business which fabricates specialty doors and entrance systems. The Company has certain rights to market the Integrated Masonry Systems, Inc. ("IMSI") patented technology and trademarks in Mexico, India, China and Puerto Rico. The Company is attempting to establish itself in the masonry products and real estate markets by offering a unique high strength insulated masonry wall system that affords significant advantages in terms of thermal efficiency, strength, ease of construction and overall cost savings. (See below "Mortarless Wall Systems") Operations Masonry Products Manufacturing Systems Fleming Manufacturing Company As of October 2000, the Company acquired all of the issued and outstanding securities of Fleming Manufacturing Company, Inc. ("Fleming Manufacturing"), a Missouri corporation located in Cuba, Missouri, from William M. Fleming ("Fleming") for an aggregate purchase price of $3,875,000. The Company is financing the acquisition via a Note and purchase money security interest in favor of Fleming. The Company has negotiated a restructure of the Fleming Note. Fleming Manufacturing has been in business for almost 60 years. It is one of the leading U.S. companies principally engaged in the manufacture of concrete masonry products machinery, plant systems, components and accessories and is the leader in the manufacture of mobile block equipment and related products to the concrete products industry. Fleming Manufacturing makes a mobile block plant for the production of mortarless block and pavers on site. Affordable Housing Eagle Building Technologies of Puerto Rico, Inc. Eagle Building Technologies of Puerto Rico, Inc. ("EPR") is a wholly-owned subsidiary of the Company organized and existing under the laws of the Commonwealth of Puerto Rico in January 2002, for the purpose of producing the components of high quality advanced mortarless wall systems and delivering on site erection of the wall systems. EPR is currently producing wall components under license from IMSI at a five (5) acre facility located in Salinas, Puerto Rico. The entire production of this facility will be dedicated to facilitating the Law 124{1} development in Salinas that is contiguous to the production facility. 3 Salinas Developers Group, Inc. Salinas Developers Group, Inc. ("SDI"), is a Puerto Rican corporation of which seventy-five percent (75%) is owned by the Company. The Company agreed to purchase its seventy-five percent (75%) stock position from existing shareholders in 2001 and finished paying for its shares in the first quarter of 2002. SDI is authorized to build approximately 170 Law 124 homes(1) on real property it owns in Salinas, Puerto Rico. These homes will sell for approximately $70,000 each. SDI is currently negotiating construction and permanent take-out financing with Doral Bank in Puerto Rico. SDI has contracted with JRC Construction, a well respected builder in Puerto Rico to be the General Contractor for the project and anticipates that JRC Construction will be its general contractor for subsequent projects. The Company has identified several projects in addition to the one at Salinas and the Company has strong expressions of interest from Doral Bank to provide the required financing for those projects. The demand for durable, cost efficient, low and moderate income housing in Puerto Rico is very high and the government of Puerto Rico is committed to increasing the supply of such housing with a goal of 60,000 units over the next three years. Concrete Masonry Products Great Wall New Building Systems Through its wholly-owned subsidiary, Great Wall New Building Systems, Inc., the Company controls a concrete products operation in Beijing China under the auspices of a 55-45 joint venture with a Beijing municipally-owned real estate development company, Beijing- Mi Yun Real Estate Development Company ("MYRE"). (See MYRE web site HTTP://WWW.FDCMY.COM ) The joint venture facility is situated on a 15 acre site approximately 45 miles northeast of the Beijing Capital International Airport in Beijing Mi Yun County which is one of several new "satellite cities" under the control of the Beijing municipality. The area has benefited from over $2 billion in infrastructure development and is a new center for light industry, higher education and municipal administration. Thus, Beijing Mi Yun supplies a ready market for the Company's joint venture products and services, with over 100,000 new housing units planned for new construction in the next several years and with MYRE involved in a major portion of the construction and development work. The heart of the operation is a state of the art Fleming "Eagle" concrete products casting machine capable of producing more than 3 million concrete masonry units annually per 8 hour shift. In addition the plant manufactures local product using traditional Chinese "wet cast" methods and is presently producing pavers for several MYRE projects using this method pending the shipment of molds and accessories for high-speed mass production of such products starting in mid Summer 2003. The market for concrete masonry products in Beijing is especially promising given the anticipated spike in residential construction prior to the 2008 Olympics and in light of governmental policies to prohibit the use of red clay masonry due to the deleterious effect of the harvesting of this clay upon agricultural topsoil. Given the relative assuredness of the local market, the Company's main challenge is to install sufficient production capacity to meet known and anticipated demand and maximize output. To this end, the Company is coordinating supply arrangement for the China operation among its Great Wall subsidiary, Fleming and the Chinese joint venture. ---------------- (1) Law 124 is a Puerto Rican housing program that subsidizes the down payment and financing of homes for low and moderate income families. 4 Specialty Systems Master Holdings The Company has concluded arrangements in the acquisition of a minority interest (16%) of Master Srl ("Master") of Italy (HTTP://WWW.MASTERDOOR.IT), through Master Holdings LLC, which was formed for the purpose of completing the Company's previously reported planned acquisition of Master. Master is a fabricator of advanced design armored doors. Master started designing and manufacturing armored doors in 1978. Continuous investments in technology and the development of new products have allowed Master to consolidate its ranking amongst the leading manufacturers in the Italian market and to successfully penetrate major European and International markets. Mortarless Wall Systems The Company owns an interest in the stock of IMSI, Inc. which owns patent rights to the IMSI Wall System. The investment in IMSI has been included in intangible assets as part of the Company's overall plan to secure rights to the related patents and licenses. This system features insulated reinforced masonry that is dry-stacked. IMSI blocks have cavities in which insulation is embedded to provide thermal stability without sacrificing structural integrity. Mortarless wall systems do not require mortar between the individual blocks but rather use a system of interlocking materials and an internal reinforcement grid of cement and rebar in combination with a surface- bonding compound composed of cement, chopped fiberglass and other materials to provide a weather resistant, structurally sound and impermeable surface. Other mortarless wall systems available to the Company vary in some degree from the IMSI system with the primary deviation being in the quality of thermal insulation. The advantages of the mortarless wall systems delivered by the Company are: * Cost competitive * Airtight * Engineered for seismic conditions * Engineered for hurricane conditions * Low maintenance costs * Environmentally friendly * Quick installation * Ease of installation; semiskilled workers can be quickly and easily trained * Flexibility of use; commercial, industrial, residential, institutional, and governmental construction Other Subsidiaries As previously reported, the Company has divested its ownership in Business Dimensions Inc. and has ceased all connection with Eagle Fuller International and Eagle Building Technologies, Private Ltd. of India and Jayant Tipnis Consultants, PL (JTCPL). In addition, the company's subsidiary, Bullhide Corporation ceased operations in the first quarter of 2002. The Company has closed Eagle Italia Srl, which was formed to acquire Master. In lieu thereof, the Company, as noted above, is an investor in Master Holdings. Employees As of December 31, 2002, the Company, inclusive of wholly-owned subsidiaries had a total of 45 employees broken down as follows: 3 employees at the corporate headquarters, 2 employees for the China subsidiary and 40 employees for Fleming Manufacturing Corp. 5 Competition The Company's operations are all specialized niche activities in the building materials and industrial machinery production sectors. As a result, the Company believes that competitive risks are fairly low and that its main challenge is to ensure adequate capacity to respond to specialized market demand for its products and services. For example, Fleming Manufacturing is one of three U.S. manufacturers of concrete masonry products manufacturing machinery and within its sector, total market demand exceeds industrial capacity. Similar circumstances pertain in China. In Puerto Rico, the Company's development rights are exclusive at its operating sites. Government Regulation The Company's use of proprietary masonry construction methods is subject to local building code approval and/or compliance and governmental inspections. The Company's sale of homes in Puerto Rico is also subject to the requirements of Public Law 124 which defines certain aspects of eligibility for subsidized housing. In China, the Company's joint venture operations are subject to The Law Of The People's Republic Of China On Joint Ventures Using Chinese and Foreign Investment and Beijing municipal laws and regulations based thereon. In addition, all products produced in China are subject to various quality control standards, certifications and quality inspections. ITEM 2. PROPERTIES ---------- The Company currently manufactures products at two (2) facilities, leases two (2) separate facilities for administrative and manufacturing purposes, and utilizes one (1) office maintained by joint venture partners at no cost, as follows: Boca Raton, Florida - The Company maintains its principal administrative offices via a sublease from M.A. Berman Company. M.A. Berman Company is owned and controlled by Meyer A. Berman, the Company's Chairman and largest shareholder. The sublease is based upon an oral month-to-month understanding whereby the Company pays M.A. Berman Company $20,000 per month for the space, telephone and internet connections, office equipment, and the services of four (4) M.A. Berman Company staff members for administrative support Salinas, Puerto Rico - Salinas Developers Group, Inc. owns twenty (20) acres of developmental real property in Salinas, Puerto Rico. The twenty (20) acres is subject to a note and purchase money mortgage in the approximate amount of $500,000. The note has matured and the Company has agreed to pay this note at the closings of the first 23 homes sold anticipated to be in July of 2003. Additionally, the twenty (20) acres is subject to liens filed by general contractors for services rendered in connection with improvements to the real property. Salinas, Puerto Rico - Eagle Building Technologies of Puerto Rico, Inc. owns five (5) acres of real property in Salinas, Puerto Rico. The real property is free and clear of all liens and encumbrances. The property is improved and suitable to house EPR's administrative offices and production facilities. Cuba, Missouri - The Company owns a 20,000 square foot manufacturing and warehouse facility located in Cuba, Missouri (outside St. Louis). The facility is approximately 35 years old. The facility encompasses the manufacturing operation of Fleming Manufacturing Company, a wholly-owned subsidiary of the Company. The facility is used to manufacture mobile block plants. The facility has no room for expansion as demand may necessitate; however, the Company also leases an additional 32,000 square foot manufacturing facility conveniently located adjacent to the owned facility at a cost of $4,000 6 per month. The lease is for a ten (10) year term commencing January 1, 2001. The Company has a right of first refusal to acquire the leased premises and an option to purchase the leased premises during the initial ten (10) year term of the lease for the appraised value of the premises. The facilities leased by the Company are well maintained. Both facilities are adequately insured and in substantial compliance with environmental laws and regulations. Mi Yun, China - The Mi Yun joint venture owns its land and improvements including a factory building and on-site administrative offices and various other adjacent buildings used for an in-house materials laboratory and employee cafeteria. ITEM 3. LEGAL PROCEEDINGS ----------------- From time to time, the Company may be involved in litigation that arises in the normal course of business operations. Securities and Exchange Commission SEC v. Eagle Building Technologies, Inc. and Anthony D'Amato (Civil Action No. 1:02CV397ESH D.D.C.) The SEC and the Company agreed to settle the lawsuit in May 2002. The Court signed the settlement papers on or about May 30, 2002, entering a permanent injunction against the Company for any future violations of Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b- 20, 13a-1, 13a-13, and 13b2-1. The Company made no admission or denial of liability in connection with the settlement. In March 2003, Anthony D'Amato was ordered to forfeit $56,623 in trading profits plus prejudgment interest of $5,637, and agreed to cancel 367,742 shares of Eagle Building stock, including 286,500 shares of stock he received as compensation for acting as an officer and director of the Company and an additional 81,242 shares to satisfy the requirement that he repay his trading profits and prejudgment interest that had been given as part of his compensation. In October 2002, D'Amato consented to entry of a permanent injunction that prohibits him from making false statements in press releases and reports made to the SEC, creating false business records, and providing false information to the Company's auditors in violation of the anti-fraud, periodic reporting and internal record-keeping provisions of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13b2-1, and 13b2-2. D'Amato is also barred from serving as an officer or director of any publicly traded company. Mr. D'Amato pleaded guilty in a criminal case to one count of securities fraud in the Southern District of Florida before United States District Judge Jose E. Martinez, and is scheduled to be sentenced criminally for his conduct in relation to the Company in July. Pursuant to the Victims Recovery Act, the Company intends to file a claim for restitution. Class Actions As previously reported, the Company has been named as a defendant in various class action suits alleging securities violations by Eagle pursuant generally to Section 10(b) and 20(a) of the Exchange Act and Sec Rule 10b-5 promulgated thereunder. The complaints generally allege that Eagle intentionally perpetrated a fraud upon the public by the dissemination of false and misleading information. By order dated July 31, 2002, the United States District Court for the Southern District of Florida consolidated all of the class action cases, appointed certain parties as lead plaintiffs and the attorneys for the plaintiffs as lead co-counsel for the class. The new case is styled In Re Eagle Building Technologies, Inc., Securities Litigation, Case Number 02-80294-CIV-RYSKAMP. 7 Kelso Capital et al. v. Eagle Building Technologies, Inc., Anthony D'Amato, Paul-Emile Desrosiers and Tanner + Co. (Southern District of Nevada, Civil Case No. CV-S-02-0367-PMP-PAL, filed March 15, 2002) Alan Davidson and Victor Kashner v. Eagle Building Technologies, Inc. (United States District Court, Southern District of Florida, Case No. 02-80323-CIV-RYSKAMP, filed March 26, 2002) Marc Newman, Kenneth Wait, Dr. Anthony Roberts and Dana Davis, et al. v. Eagle Building Technologies, Inc., Anthony D'Amato, Dr. Ralph Thomson, Andros Savvides, Wilfred G. Mango, Jr., Donald Pollock, Robert Kornahrens, Charles A. Gargano, Samuel Gejedson, Meyer A. Berman and Tanner + Co. (United States District Court, Souther, District of Florida, Case No. 02-80294-CIV-RYSKAMP, filed April 5, 2002) Inglewood Holdings, Ltd. V. Eagle Building Technologies, Inc., and Anthony D'Amato (United States District Court, Southern District of Florida, Case No. 02-80340-CIV-MIDDLEBROOKS, filed April 16, 2002) David D. Pain v. Eagle Building Technologies, Inc. and Anthony D'Amato (United States District Court, Southern District of Florida, Case No. 02-80372-CIV-HURLEY, filed April 24, 2002) Jeff Gass v. Eagle Building Technologies, Inc., Anthony D'Amato, Paul-Emile Desrosiers and Tanner + Co. (United States District Court, District of Nevada, Case No. CV-S-02-0640-PMP-RJJ, filed May 6, 2002) [Robert Gluck v. Eagle Building Technologies, Inc. et al. (United States District Court, Southern District of Florida, Case No. 02-CV- 80302, filed April 8, 2002{2})] Guerrilla IRA Partners, L.P. v. Eagle Building Technologies, Inc. and Anthony D'Amato (United States District Court, Southern District of Florida, Case No. 02-CV-80403, filed May 3, 2002) 8 Additional Securities Litigation -------------------------------- Deborah Donoghue v. Eagle Building Technologies, Inc., U.S. District Court for the Southern District of New York Case 03CV2472. This stockholder's derivative suit seeks to recover alleged "short swing" profits realized by certain beneficial owners of the Company's common stock in violation of Section 16(b) of the Securities Exchange Act of 1934. The Company's position is that the claims are satisfied because the proceeds of such sales in excess of any imputable profits were given over to the Company and/or, in any case, many of the transactions identified in the claims are exempt transactions. A pre-trial conference has been scheduled in the case. Mark Neuman v. Anthony D'Amato, et al. and Eagle Building Technologies, Inc. (as a nominal defendant) (15th Judicial Circuit in and for Palm Beach County, Florida, Case No. CA 02-05560-AG). This complaint was filed on May 9, 2002, as a shareholders derivative action alleging breach of fiduciary duty, misappropriation of confidential information, and contribution and indemnification. The Plaintiff is seeking damages in excess of $15,000. The Company filed a motion to dismiss the complaint on July 3, 2002. The Court has not yet issued a ruling on the motion. No discovery has occurred and no trial date has been set. We are unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. Co-Defendant Robert Kornahrens recently filed a cross-claim for legal fees against the Company. Anthony I. Bentley, James Bruce Whiting and Beverly D. Whiting v. Eagle Building Technologies, Inc. (Third Judicial District Court, Salt Lake City, Utah, Case No. CA 02-0901808). The complaint alleges breach of contract, unjust enrichment and conversion for failure to issue securities to the Plaintiffs. Trust #191190MAN(A) v. Eagle Building Technologies, Inc. et al. (US District Court, District of Utah, Central Division, Case No. 02-CV-202CV- 0502ST). This is an action brought by a Trust whose agent is Clealon B. Mann. The Trust's sole cause of action is brought under RICO and alleges that Eagle failed to remove the Rule 144 legend from 8,333 shares of Eagle stock, claimed the shares were attached pursuant to a pending lawsuit, and titling shares in the name of Clealon Mann. Plaintiff's claimed damages are the amount of the Eagle shares at the time it would have sold them. However, Plaintiff does not indicate when such a sale would have occurred. As with the McConkie lawsuit, General Securities Transfer Agency (GSTA) and Iverna Morgan, GSTA's president, were named as defendants and Eagle has agreed to indemnify them. The Company is defending this action based upon the following grounds: (a) the shares were titled in the name of the trust, and listed Mann only as trustee; (b) the shares were issued without restriction in August 2000; and (c) at least two writs of execution were issued in 2001, both of which specifically attached the Trust's shares and prevented the sale of said shares. The Company has filed an answer to the Complaint denying all allegations. F. Briton McConkie and Stephen R. Fey v. Eagle Capital International, and General Securities Transfer Agency, Inc. (United States District Court for the Central Division of Utah, Civil Case No. 2:01-CV0-0950 ST). This is an action brought by Brinton McConkie and Stephen Fey on the grounds of breach of contract. The plaintiffs allege that Eagle wrongfully refused to transfer 200,000 shares, represented by certificates number 432114 and 432119. Plaintiffs have produced affidavits of Doug Dent and Ralph Thompson, former members of the Eagle Board of Directors, in which both men state that the shares were properly issued. The potential damages in this matter would likely be the value of the shares in April 2001, when Plaintiffs initially requested the shares transferred. The Company's asserted defense is that the shares in question were never properly issued and there was a lack or failure of consideration. Discovery has just begun. Additionally, GSTA, the agency handling Eagle's stock certificates, was named as a defendant. Eagle has agreed to indemnify GSTA in this matter. 9 Other Litigation ---------------- Polysolutions Corp. and Bullhide Liner of Broward County, Inc. v. Eagle Capital International, Inc. (14th Judicial Circuit Court in and for Palm Beach County, Florida, Civil Case No. CA-01-9017AB). The complaint was filed on September 4, 2001. On or about April 23, 2002, Plaintiffs sought to amend the complaint to name Anthony D'Amato, Ralph Thomson, Richard Lahey, Andros Savvides, Wilfred Mango, Donald Pollack, Robert Kornahrens, Charles Gargano, Samuel Gejdenson, Meyer Berman, Howard Ash, and Bruce Mauldin as individual defendants. The Amended Complaint alleges counts for breaches of contract, fraud in the inducement and breach of fiduciary duty. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. A cross claim was recently filed by former Director Kornahrens in this matter, complaining that the Company was failing to honor its obligations to defend him. The Company believes that this cross claim will be withdrawn in light of the substitution of new counsel. Actionable Intelligence Technologies, Inc. v. Eagle Building Technologies, Inc. (15th Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA 02-03197 AB). A complaint was filed on March 12, 2002, by a company based in San Diego, California, arising out of the Company's alleged breach of a contract between the parties, and seeking damages in excess of $15,000. The plaintiff claims that the Company owes more than $820,000.00 for consulting services rendered, and up to $5,000,000.00 for services that were to be performed in the future. On April 30, 2002, the Company filed an answer to the complaint denying liability and asserting several affirmative defenses. Discovery is in its preliminary stages. No trial date has been set, but the case is subject to mandatory mediation. Failing settlement, the Company intends to defend this action vigorously. We are unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. Taskin Ticaret, LTD. v. Fleming Manufacturing Company, Inc. (Circuit Court for Crawford County, Missouri, Case No. CV100-269CC). A judgment of $119,215 was entered into against Fleming on May 29, 2002 following a two day jury trial. Because all of the assets of Fleming serve as collateral to lending institutions or other secured creditors, Fleming does not have the authority or ability to pay the judgment. The matter is on appeal. J.C. Group Corp. and Jose A. Camacho v. Salinas Developers, Inc., Eagle Building Technologies (Civil No. G-CD2002-0109; Sala 302) On April 18, 2002, Plaintiffs J.C. Group, Inc. ("J.C. Group") and Jose A. Camacho ("Camacho") filed a complaint against Salinas Development Group, Inc. ("SDG"), a Puerto Rico corporation controlled by the Company and Eagle Building Technologies, of Puerto Rico, Inc. ("Eagle-PR"), a wholly-owned subsidiary of the Company in the Federal District Court of the Commonwealth of Puerto Rico claiming $1,260,299 plus damages and legal fees. SDG timely filed the Answer to the Complaint and a Counterclaim. SDG alleges in its Counterclaim that Plaintiffs owe $4,110,000 to SDG on account of fund deviation, false and excessive invoicing and damages. Eagle-PR filed a motion for summary judgment based on the fact that it is not liable for the acts of SDG and that Eagle-PR is not the stockholder of SDG. In addition, SDG filed a Third Party Complaint against Camacho for $5,910,000 claiming: 1) poor performance as project manager; 2) fund deviation; 3) false invoicing; 4) purchase of land in his own name with SDG funds; 5) breach of fiduciary duty; 6) interference with SDG's business; and 7) failure to make capital contributions. On June 20, 2002, Plaintiffs filed an Amended Complaint against SDG and Eagle-PR, and increased the amount claimed to $2,872,857.29, including the lost profits of Camacho. As of the date of this filing, because of the complex nature of the matters involved, the outcome of this case cannot be predicted. 10 Paul-Emile Desrosiers v. Eagle Building Technologies, Inc. (15th Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA 02-03431 AA). This is an action filed against the Company on April 1, 2002, by the former President and Chief Executive Officer of the Company seeking damages in excess of $15,000 for allegedly owed compensation and reinstatement as an officer and director. The Company filed a motion to dismiss five of the six counts in the complaint; the Court heard oral argument on June 28, 2002. On July 25, 2002, the Court dismissed without prejudice the counts seeking declaratory relief and damages for retaliation, while dismissing with prejudice the counts requesting injunctive relief. The only count remaining at the time of this Report is Desrosiers's claim for Breach of Contract. Discovery is in its preliminary stages. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. Jennifer Nina v. Eagle Building Technologies, Inc. (15th Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA 02- 4297AE). This complaint was filed April 10, 2002, alleging claims for unlawful termination, retaliation, breach of contract and unpaid wages, and seeking damages in excess of $15,000.00. On or about May 6, 2002, the Company filed a motion to dismiss certain claims, which alleged retaliatory discharge. The Court, by order entered June 26, 2002, granted that motion, dismissing those claims without prejudice. Discovery is in the preliminary stages. A trial date is set, but the case is subject to mandatory mediation. Failing settlement, the Company intends to defend this action vigorously. We are unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter Julio Cruz, Jr. v Eagle Building Technologies, Inc. ((15th Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA 02- 005668-AF). This is an action filed on May 15, 2002, by a former employee of the Company seeking damages in excess of $15,000 for wrongful termination, retaliation, unpaid wages, and breach of contract. The Company filed a motion to dismiss certain claims, which alleged retaliatory discharge. The Court has not yet ruled on that motion, although Plaintiff's counsel has agreed to entry of an order dismissing these claims without prejudice. Discovery is in the preliminary stages. No trial date has been set. A trial date is set, but the case is subject to mandatory mediation. Failing settlement, the Company intends to defend this action vigorously. We are unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. Gina Nicoleau v. Eagle Building Technologies, Inc. (15th Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA-02- 05675-AH). This complaint was filed on June 14, 2002, by a former employee of the Company seeking damages in excess of $15,000 for wrongful termination, retaliation, unpaid wages, and breach of contract. Plaintiff's counsel has advised us that he intends to amend the complaint to drop the retaliatory discharge claims. Discovery is in the preliminary stages. A trial date is set, but the case is subject to mandatory mediation. Failing settlement, the Company intends to defend this action vigorously. We are unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. 11 A.R.H. Family et al. v. Eagle Building Technologies, Inc., Cause Number GN203813, 345th Judicial District, Travis County, Texas.; La Petrona Ltd. v. Eagle Building Technologies, GN300161, 250th Judicial District, Travis County Texas. These suits allege that the Company fraudulently solicited investment monies from a syndicate of individual investors organized by their investment advisor Lee Urbina. The Company takes the position that the fraud was perpetrated on these investors by Anthony D'Amato on his own account and without the knowledge of the Company through the creation of an investment vehicle entirely under his personal control, without authorization of the Company, and for his own purposes. Eagle Building Technology Inc., v. Zurich American Insurance Comapany, 02-22611-CIV-Ryskamp, U.S. District Court for the Southern District of Florida. This case approved a settlement between the Company and its insurance carrier whereby certain funds were released to the Company pursuant to a binder for D&O and liability coverage. Under the terms of the Settlement, the former officers are barred from claiming coverage under the binder and the funds are available to the Company for the costs of defending liability claims asserted against the Company. IMSI, Inc. v. Eagle Building Technologies, Inc., U.S. District Court, Central Division, Utah. The suit seeks damages and an injunction for alleged infringement of IMSI patents related to the Company's use of the IMSI system in Puerto Rico. The Company is of the view that the claims have no merit. The Plaintiff has not moved for specific relief in connection with the Company's projects in Puerto Rico. Threatened Litigation Claims by Cheryl Ray. Ms. Ray is the surviving spouse of Herbert Ray, a founding member of IMSI. Upon Herbert's death, Ms. Ray received 2,000,000 IMSI shares. In January 1999, Ms. Ray agreed to exchange her IMSI shares for Eagle Shares. Ms. Ray alleges that in June 2000, Anthony D'Amato, then President and CEO of Eagle, informed her that her original IMSI shares were being cancelled and that there had been insufficient consideration for the 1999 stock exchange. According to Ms. Ray, she then agreed to return all but 500,000 common shares. Ms. Ray now alleges that she was defrauded by Mr. D'Amato and Eagle. In November 2001, she issued a demand letter for $2,500,000, or the value of her original shares. In February 2002, Ms. Ray threatened legal action. 12 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- None. ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS -------------------------------------------------------- The Company's common stock began trading on the National Association for Securities Dealers, Inc.'s OTC Bulletin Board in the last quarter of 1996, and is currently trading under the symbol "EGBT". Set forth below is the range of high and low bid information for the Company's common stock for the two most recent fiscal years. This information represents prices between dealers and does not reflect retail mark-up or mark-down or commissions, and may not necessarily represent actual market transactions. Fiscal Period High Bid Low Bid ------------- -------- ------- 2001: ----- First Quarter..................... $ 5.58 $ 1.68 Second Quarter.................... 7.29 2.50 Third Quarter..................... 8.59 3.35 Fourth Quarter.................... 12.10 5.25 2002: ----- First Quarter..................... $ 12.40 $ 1.38 Second Quarter.................... 3.95 2.30 Third Quarter..................... 3.08 2.30 Fourth Quarter.................... 2.95 1.20 2003: ----- First Quarter..................... $ 3.25 $ 1.00 Second Quarter (through June 30, 2002)......... $ 2.30 $ 1.05 As of June 30, 2003, there were approximately 532 record holders of the Company's outstanding Common Stock. Since additional shares of the Company's Common Stock are held for stockholders at brokerage firms and/or clearing houses, the Company was unable to determine the precise number of beneficial owners of its Common Stock as of June 30, 2003. The Company has never declared or paid cash dividends on its capital stock and the Company's Board of Directors intends to continue that policy for the foreseeable future. Earnings, if any, will be used to finance the development and expansion of the Company's business. Future dividend policy will depend upon the Company's earnings, capital requirements, financial condition and other factors considered relevant by the Company's Board of Directors and will be subject to limitations imposed under Delaware law. 13 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION --------------------------------------------------------- The analysis of the Company's financial condition, liquidity, capital resources and results of operations should be viewed in conjunction with the accompanying financial statements including the notes thereto. General The Company was incorporated in Nevada in 1994 under the name IAC, Inc. and has since changed its name to Eagle Building Technologies, Inc. During 1998, the Company acquired the assets of IMSI CapFund, Inc. ("CapFund"). CapFund utilized the IMSI{R} Block System which, today, through licensing agreements between the Company and IMSI, is the preferred technology of the Company. As of December 31, 2002, the Company controlled and operated subsidiaries including the following consolidated subsidiaries, Great Wall Building Systems, Inc., Fleming Manufacturing Company, Salinas Development Corporation and Eagle Building Technologies of Puerto Rico and a 16% interest in Master Holdings. Financial Condition At December 31, 2002, the Company had total assets of $10,699,268 as compared to total assets of $15,876,397 at December 31, 2001; total liabilities(2) of $25,704,104 as compared to $18,954,253 in 2001; total stockholders' deficit of $16,173,584 as compared to $4,246,604 in 2001. The increase in stockholders' deficit during the year ended December 31, 2002 was the result of operational losses in the year 2002, the impairment of the value of certain tangible and intangible assets due to changes in conditions and assumptions and settlement costs claims and litigation. Impairment losses and settlement costs claims and litigation recorded during the years ended December 31, 2002 and 2001 were as follows: 2002 2001 ---- ---- Impairment of goodwill related to the Company's investment in: Great Wall Building Systems, Inc. - $1,696,309 Fleming Manufacturing 1,208,991 - Salinas Development 1,096,234 - Impairment of Investment in Unconsolidated Subsidiaries: Master Door - 3,581,183 China Joint Venture - 622,618 Impairment of Property and Equipment - 399,600 Impairment of License Rights 4,030,797 Settlement Costs Claims and Litigation 858,476 4,012,427 ------------- (2) As a result of the Company's investigation in connection with the restatement of its 2001 financials, the Company believes that there may be third parties to whom Anthony D'Amato, the Company's former Chairman and CEO, has obligated, or made representations purporting to obligate, the Company, or to issue equity in the Company without the knowledge or authorization of the Company's Board of Directors. The Company will continue to investigate and determine the validity of any such third party claims on a case by case basis. At the time of this filing, the Company cannot determine the financial impact, if any, to the Company as a result of Mr. D'Amato's actions. 14 Liquidity and Capital Resources As of December 31, 2002, the Company's cash totaled $141,066 as compared to $174,686 at December 31, 2001, a decrease of $33,620. Net cash used in operations in 2002 was $7,123,502 compared to $6,523,129 in 2001. During the years 2002 and 2001 the Company did not generate cash flow sufficient to meet operating requirements. The Company funded this deficiency in 2002 and 2001 primarily through proceeds from notes payable in the approximate amount of $6,800,000 and $9,500,000 and cash proceeds from the sale of common stock in the approximate amount of $986,000 and $4,231,000, respectively. On July 2, 2001, the Company raised $5,340,000 through the issuance of convertible 10% notes payable due July 2, 2004 including $3,340,000 from Mr. Meyer Berman, a Director of the Company. In addition, Mr. Berman personally and through various entities controlled by Mr. Berman made various short-term loans to the Company through-out 2002 and 2001 which as of December 31, 2002 and 2001 totaled approximately $6,390,000 and $1,380,000. In addition, the Company will continue to seek out additional financing in order to continue or expand its operations through-out the foreseeable future. Results of Operations REVENUES - Sales for the year ended December 31, 2002, were $2,928,164 compared to sales of $3,402,915 in 2001. This decrease was the result of inadequate financing in 2002 available in order to meet sales objectives. The Company anticipates that sales will increase in 2003 due to anticipated increased liquidity. GROSS PROFIT - Gross profit for the year ended December 31, 2002 was $492,633 compared to gross profit of $485,051 for 2001. Gross profit as a percentage of sales increased to 16.8% in 2002 compared to 14.3% in 2001. DEPRECIATION AND AMORTIZATION - Depreciation and amortization for the year 2002 increased to $1,062,325 as compared to $569,789 in 2001. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and administrative expenses were $10,653,985 for the year ended December 31, 2002, as compared to $11,251,560 for 2001. IMPAIRMENT COSTS AND SETTLEMENT COSTS AND LITIGATION - Impairment costs and Settlement Costs and Litigation for the year ended December 31, 2002 totaled $7,194,498 as compared to $10,312,137 for 2001. Details related to the 2002 and 2001 impairment losses are as follows: 2002 2001 ---- ---- Impairment of goodwill related to the Company's investment in: Great Wall Building Systems, Inc. - $1,696,309 Fleming Manufacturing 1,208,991 - Salinas Development 1,096,234 - Impairment of Investment in Unconsolidated Subsidiaries: Master Door - 3,581,183 China Joint Venture - 622,618 Impairment of Property and Equipment - 399,600 Impairment of License Rights 4,030,797 Settlement Costs Claims and Litigation 858,476 4,012,427 15 The Company during 2002 and 2001 recorded settlement costs claims and litigation in the amount of $858,476 and $4,012,427 related primarily to the accrual for estimated amounts the Company may owe and the write-down of assets as the result of anticipated future settlements. OTHER INCOME (EXPENSE) - Other income (expense) is broken down into the following three (3) areas for 2002 and 2001: interest expense, gain on sales of securities, and other. The balances were ($1,106,142), $318,500 and $462,272, respectively, in 2001. Interest expense in 2001 was primarily the result of the issuance of common stock for accrued interest. The 2002 amounts were ($912,541), $0 and $0 respectively. Interest expense in 2002 included ($355,900) as the result of the issuance of common stock for accrued interest. The Company experienced a net loss of $18,268,391 in 2002 compared to a net loss of $21,404,016 in 2001. As stated above, the net losses incurred included total impairment costs and settlement costs and litigation of $7,194,498 and $10,312,137 in 2002 and 2001, respectfully. Critical Accounting Policies The SEC's Financial reporting Release No. 60 requires all companies to include a discussion of critical accounting polices or methods used in the preparation of financial statements. We have identified the following as accounting policies that are the most critical to aid in understanding and evaluating our financial results: |_| Accounting for costs and revenues associated with real estate development |_| Accounting for contingencies associated with our litigation |_| Evaluation of impairment of intangible assets and our investment in Master Door Our policies for accounting for real estate development activities are described in Note 1 to the financial statements. Currently no sales of homes have occurred and the Company has incurred significant costs to develop its Salinas project. These costs have been capitalized and will be charged against the revenues from the sale of the related homes. The Company has estimated the total revenues to be received from the sale of the homes and has recorded an expense for any estimated loss it may incur from the ultimate sale of these homes. Should the Company incur costs in excess of its estimates or not be able to realize the estimated revenue from the sale of the homes, an additional impairment loss would be required to be recognized. As more fully described under Item 3, the Company has significant litigation and claims that could result in losses in excess of those provided for in the financial statements. The Company's policy is to evaluate all claims and determine whether legal counsel and we believe the likelyhood of an unfavorable outcome is probable, reasonably possible or remote. For those claims we evaluate as reasonably possible or remote, no amounts are provided for in the financial statements. For those claims we believe are probable and estimable we have recorded an estimated liability in the financial statements. However, estimating the outcome of litigation and claims and estimating the potential losses is difficult and therefore the amounts provided for could change and those changes could be significant. As described in Note 1 to the financial statements, the Company evaluates all tangible and intangible assets for impairment and provides for losses when it is determined that impairment has occurred. Based on the Company's estimate of future cash flows etc., losses for impairment have been provided for on many of the Company's assets. These estimates change based on the economic environment and other factors that could have a significant impact on the Company's financial statements. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The financial statements required pursuant to this Item 7 are included in this Form 10-KSB as a separate section commencing on page F-1 and are hereby incorporated by reference into this Item 7. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ----------------------------------------------------------- None. 16 PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT ------------------------------------------------------------- (a) CURRENT DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AS OF THE DATE OF THIS REPORT Name Age Position ---- --- -------- Meyer A. Berman 68 Chairman of the Board and CEO Steven A. Levy 52 Director and President, Great Wall New Building Systems Debbie Keogh 49 Director and President, Fleming Manufacturing Alan Jawitz 73 Director MEYER A. BERMAN joined the Company in February, 2001, as a Director and in April 2002, assumed the position of Chairman of the Board. Mr. Berman founded M.A. Berman Co., a registered securities broker-dealer in 1981. Mr. Berman is regularly consulted for his stock market expertise, and has been quoted and referenced in financial publications such as The Wall Street Journal and Barron's as well as appearances on CNBC. Mr. Berman has attended the University of Illinois, University of Connecticut, and City College of New York. DEBBIE KEOGH is President of Fleming Manufacturing Company and a Director of Eagle. At Fleming she is responsible for all facets of Fleming's' manufacturing operation, sales, marketing and financial matters. Following a career in professional administration, Ms. Keogh joined Fleming 15 years ago, where she started in sales and came to learn all aspects of Fleming's business. STEVEN A. LEVY is a Director and President of the Company's Great Wall New Building Systems ("GWNBS") subsidiary and Chairman of the joint venture between GWNBS and the Mi Yun Real Estate Development Company in Beijing China. Prior to joining the Company, he practiced law in Washington DC, focusing on international business transactions. He served as a member of the President's Export Council, Subcommittee on Export Administration and has undertaken interfaith relations and philanthropic work with the Catholic Archdiocese of Maryland. ALAN JAWITZ joined the Board in 2002, following a long career in private legal practice in Manhattan, where he specialized in litigation. Mr. Jawitz graduated from Dickinson School of Law and attended Duquesne University. There are no other significant employees. There are no family relationships between the above listed persons, nor is there any involvement in certain legal proceedings except for those described under Item 3. The Company's directors serve for a term of one year, or until their successors shall have been elected and qualified. (b) CHANGES IN OFFICERS AND DIRECTORS FROM JANUARY 1, 2002 THROUGH PRESENT ANTHONY D'AMATO joined the Company in April 1999 as a Director and served as Chairman from May 1999 to February 2002. From June 1, 1999 to February 2002, Mr. D'Amato served as President and CEO of the Company. In February 2002, Mr. D'Amato resigned as an officer and director of the Company. DR. RALPH THOMSON joined the Company as a Director in November 1998, and was later named Corporate Secretary. Dr. Thomson resigned without disagreement as an officer and director of the Company in January 2002. ANDROS S. SAVVIDES joined the Company as a Director in November 1999, and resigned without disagreement in October 2001. 17 ROBERT P. KORNAHRENS joined the Company as a Director in April 2000, and resigned without disagreement in February 2002. CHARLES A. GARGANO joined the Company as a Director in June 2000, and resigned without disagreement in October 2001. WILFRED G. MANGO, JR. joined the Company in August 2000 as Chief Operating Officer and Director. Mr. Mango resigned without disagreement as an officer and Director of the Company in October 2001. PAUL-EMILE DESROSIERS joined the Company in December 2000 as Vice President of Operations and Government Relations. In August 2001, Mr. Desrosiers was appointed President, Chief Executive Officer and a Director. In January 2002, Mr. Desrosiers was terminated as an executive officer of the Company. RON G. LAKEY joined the Company as Treasurer and Chief Financial Officer in January 2002. In February 2002, Mr. Lakey resigned as an officer of the Company. DR. MARTIN SHUBICK joined the Company as a director in April, 2002 and resigned without disagreement in June, 2002. DOUGLAS BENDER joined the Company as a director in March 2003 and resigned in April 2003. SAM GEJDENSEN joined the Company as a director in February 2001 and resigned without disagreement in April 2003. DAN CURLEE joined the Company as COO, then CEO and as a Director in January 2002 and resigned as an officer and Director without disagreement in November 2002. HOWARD ASH joined the Company as a Director in March 2002 and resigned without disagreement in December 2002. J. WARREN BLAKER joined the Company as a Director in October 2002 and resigned without disagreement in December 2002. SAUL FENSTER joined the Company as a Director in October 2002 and resigned without disagreement in December 2002. ROGER KAHN joined the Company as a Director in March 2003 and resigned without disagreement in April 2003. GEORGE GAGER joined the Company as a Director in October 2002 and resigned without disagreement in April 2003. RHYS DON POLLOCK was promoted from Chief Financial Officer to Senior Vice President of Manufacturing in January 2002 and resigned without disagreement as an officer and director effective December 1, 2002. Mr. Pollock began his service as a Director in April 2000. BRUCE MAULDIN joined the Company as a Director in March 2002 and resigned without disagreement in August 2002. WYNN WESTMORELAND served as a Director from October 2002 through November 2002. MEYER BERMAN took over as CEO in December 2002. ITEM 10. EXECUTIVE COMPENSATION ---------------------- The following table sets forth summary compensation information with respect to compensation paid by the Company to the Chief Executive Officer of the Company ("CEO") and the Company's six most highly compensated executive officers or key employees other than the CEO, who were serving as executive officers during the Company's fiscal year ended December 31, 2002 and 2001. 18

(1) The Company and Mr. D'Amato dispute amounts paid to Mr. D'Amato which amounts may be in excess of $2,000,000, and the amount of compensation paid by the Company cannot be accurately determined at this time. (2) The Company and Mr. Desrosiers dispute amounts paid to Mr. Desrosiers which amounts may be greater than $625,000. (3) Pursuant to an Employment Agreement, Mr. Desrosiers received 128,668 shares of the Company's restricted common stock valued at $386,004 ($3.00 per share). (4) Pursuant to an Employment Agreement, Mr. Christensen received 25,000 shares of the Company's restricted common stock in 2001 valued at $108,501 ($4.34 per share). (5) Pursuant to a Stock Purchase Agreement between the Company and William Fleming, the spouse of Mr. Fleming, Susan J. Fleming, was retained as an administrative sales coordinator at Fleming Manufacturing Co. 19 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The following table sets forth, as of the date of this report, certain information concerning beneficial ownership of the Company's Common Stock by (i) each person known to the Company to own 5% or more of the Company's outstanding Common Stock, (ii) all directors of the Company and (iii) all directors and officers of the Company as a group: Shares Beneficially Percentage Name & Address Position with Company Owned(1) of Shares -------------- --------------------- ------------ ---------- Paul-Emile Desrosiers c/o Eagle Building Technologies, Inc. 700 East Palmetto Park Road Boca Raton, FL 33432 Director 132,667(2) 1.3% Meyer Berman c/o Eagle Building Technologies, Inc. 700 East Palmetto Park Road Boca Raton, FL 33432 Director 3,093,568(3) 30.0% Steven Levy c/o Eagle Building Technologies, Inc. 700 East Palmetto Park Road Boca Raton, FL Director 30,000 0.3% Debbie Keogh c/o Eagle Building Technologies, Inc. 700 East Palmetto Park Road Boca Raton, FL Director 30,000 0.3% Alan Jawitz c/o Eagle Building Technologies, Inc. 700 East Palmetto Park Road Boca Raton, FL Director 122,411 1.2% The "Urbina" Group (4) Shareholders 514,094 5.0% All Officers and Directors as a Group 3,922,740 38.1% 20 (1) As used herein, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934 as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the power to dispose or direct the disposition of) with respect to the security through any contract, arrangement, understanding, relationship or otherwise, including a right to acquire such power(s) during the next 60 days. Unless otherwise noted, beneficial ownership consists of sole ownership, voting and investment rights. (2) Mr. Desrosiers claims status as a director. Issues pertaining to his role in the Company are subject to litigation as reported in Item 3 above. (3) Includes (i) 2,387,434 shares of Common Stock owned by Meyer A. Berman, individually (including 2.3 million shares awarded in 2003); and (ii) 358,333 shares of Common Stock owned by Meyer A. Berman, Individual Retirement Account. The balance of the shares are held by members of Mr. Berman's immediate family. (4) The Company considers the "Urbina" group to be acting in concert for purposes of this Report. The "Urbina" group consists of the following individuals/entities (with shares in parenthesis): ARH Family Partnership, Ltd. (32,738); Ray L. Hart Living Trust (537); Corey L. Hart (10,000); JDCAN3 Holdings, LP (43,363); John R. and Terry E. McLaughlin (72,544); Jun Ming Trading, Ltd. (66,340); Ken Taylor (13,170); Last Time Around, L.P. (58,035); Michael Kenoyer (112,252); La Patrona Ltd. (61,896); Hill-McVey Family Ltd. Partnership (20,029); Paul Faulkner (2,000); Pamposh Zutshi (6,667); Guadalupe & Ignacio Lozano (466); Intime LP (10,000); Pricilla, Steven & Havilal Maya (1,000); and Martin Slagter (3,056). COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities (collectively the "Reporting Persons") to file reports and changes in ownership of such securities with the Securities and Exchange Commission and the Company. Based solely upon a review of (i) Forms 3 and 4 and amendments thereto furnished to the Company pursuant to Rule 16a-3(e), promulgated under the Exchange Act, during the Company's fiscal year ended December 31, 2002, and (ii) Forms 5 and any amendments thereto and/or written representations furnished to the Company by any Reporting Persons stating that such person was not required to file a Form 5 during the Company's fiscal year ended December 31, 2002, it has been determined that Paul-Emile Desrosiers was delinquent with respect to such person's reporting obligations set forth in Section 16(a) of the Exchange Act. 21 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS ---------------------------------------------------- The Company operates in China while holding additional licenses for Mexico, India, Puerto Rico and Europe pursuant to five (5) licensing agreements with Integrated Masonry Systems International, Inc. The Company owns thirty- eight percent (38%) of the issued and outstanding shares of IMSI. During the period commencing October 2000 to July 2001, Mr. D'Amato converted loans in the amount of $2,397,416 to the Company into 789,879 shares of restricted common stock. On January 26, 2001, the Company's Board of Directors approved a 1- for-6 reverse stock split of the Company's common stock effective February 5, 2001. During the period ended December 31, 2001, primarily in July 2001, Meyer A. Berman and affiliates of Meyer A. Berman, Chairman of the Board of Directors, loaned the Company a total of $3,340,000. In addition, Mr. Berman personally and through various entities controlled by Mr. Berman made various short-term advances to the Company through-out 2002 and 2001 which as of December 31, 2002 and 2001 totaled approximately $6,700,000 and $1,380,000. During the period commencing January 1, 2003 through June 30, 2003, Meyer A. Berman and affiliates of Mr. Berman loaned the Company an additional approximate net amount of $900,000. In February 2002, Andy Berman and Abby Berman, children of Meyer A. Berman, loaned the Company a total net amount of $240,000. During the period ended December 31, 2001, the Company had unsecured advanced receivables (3) in the aggregate amount of $934,645 from its former Chairman and CEO, Anthony D'Amato. In February 2002, Don Pollock, an executive officer and director claims to have loaned the Company $40,000. In April 2002, Martin Shubik, a former director, loaned the Company $30,000. In May 2002, the Company assigned all of its interest in Business Dimensions, Inc. to Don Pollock, an officer and director of the Company. As a result of the Company's investigation in connection with the restatement of its 2000 and 2001 financials, the Company believes that there may be third parties to whom Anthony D'Amato, the Company's former Chairman and CEO, has obligated, or made representations purporting to obligate, the Company, or to issue equity in the Company without the knowledge or authorization of the Company's Board of Directors. The Company will continue to investigate and determine the validity of any such third party claims on a case by case basis. At the time of this filing, the Company cannot determine the financial impact, if any, to the Company as a result of Mr. D'Amato's actions. ------------ (3) As a result of the Company's investigation in connection with its 2000 and 2001 financials, the Company cannot determine all monies that may be owed to the Company by Mr. D'Amato. 22 ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K --------------------------------------------------------------- EXHIBIT NO. ----------- 3.1 Certificate of Incorporation & Certificates of Amendment Thereto of Registrant* 3.2 By-Laws of Registrant* 10.1(a) Anthony D'Amato Employment Agreement (May 15, 1999 - May 14, 2001) * 10.1(b) Anthony D'Amato Employment Agreement (May 15, 1999 - May 14, 2001)* 10.2 Wilfred C. Mango, Jr. Employment Agreement (August 1, 2000 - July 31, 2002) * 10.3 Wilfred C. Mango, Jr. Consulting Agreement (August 1, 2000 - July 31, 2002)* 10.4 Ralph Thompson Employment Agreement (May 15, 1999 - May 14, 2001) * 16.1 Letter of No Disagreement from Christensen & Duncan, CPA's LC.* * Filed with December 31, 2000 Form 10-KSB REPORTS ON FORM 8-K ------------------- During the fourth quarter ended December 31, 2000, and through the date of the filing of this Form 10-KSB, the Company filed reports of Form 8-K as follows: (1) On or about November 30, 2000, the Company filed a Report on Form 8-K announcing that Christensen & Duncan, CPA's LC resigned as the Company's independent accountants. (2) On or about December 4, 2000, the Company filed a Report on Form 8-K announcing that the Company had engaged Tanner + Co. as the Company's new independent accountants. (3) On or about January 9, 2001, the Company filed a Report on Form 8-K/A amending the Forms 8-K filed on or about November 30, 2000 and December 4, 2000. (4) On or about January 10, 2001, the Company filed a Report on Form 8-K announcing the acquisition of Fleming Manufacturing Co., a privately held Missouri corporation that manufacturers mobile block pants for the production of mortarless block and pavers. 23 (5) On or about January 26, 2001, the Company filed a Report on Form 8-K announcing a one-for-six (1:6) reverse stock split of the Company's Common Stock effective February 5, 2001. (6) On or about February 9, 2001, the Company filed a Report on Form 8-K announcing the appointment of Samuel Gejdenson and Meyer A. Berman to the Company's Board of Directors. (7) On or about April 16, 2001, the Company filed a Report on Form 8-K announcing the acquisition of eighty-five percent (85%) of the issued and outstanding securities of Master Srl ("Master"), an Italian corporation located in Piacenza, Italy. (8) On or about May 1, 2001, the Company filed a Report on Form 8- K announcing the acquisition of eighty-five percent (85%) of the issued and outstanding securities of Master srl ("Master"), an Italian corporation located in Piacenza, Italy, subject to completion of due diligence and a final audit. (9) On or about May 10, 2001, the Company filed a Report on Form 8-K announcing the Company's name change to Eagle Building Technologies, Inc. and the new trading symbol to "EGBT". (10) On or about May 18, 2001, an Amendment to the January 10, 2001 Form 8-K was filed providing the audited financials of Fleming Manufacturing Company, Inc. ("Fleming"), a wholly owned subsidiary of the Company, for the fiscal year ended December 31, 2000, and the Company's unaudited consolidated Proforma Financial Statement for the fiscal year ended December 31, 2000, inclusive of Fleming. (11) On or about August 2, 2001, the Company filed a Report on Form 8-K announcing the Company entered into an agreement with Aquila Ventures Corporation ("Aquila") to form a Joint Venture entity, Aquila Squared Building Corporation (the "Joint Venture"), to develop large scale social housing in Mexico. (12) On or about August 9, 2001, the Company filed a Report on Form 8-K announcing that the proposed acquisition of eighty-five percent (85%) of the issued and outstanding securities of Master srl ("Master"), had not as yet been completed because the final audit of Master's sales revenues has not been finalized to the satisfaction of the Company. (13) On or about December 12, 2001, the Company filed a Report on Form 8-K announcing that the Company had filed a complaint in the Circuit Court for Palm Beach County, Florida, against an unidentified defendant known as "Spadeboy" who the Company alleged posted false defamatory, and libelous information about the Company on the internet website known as Raging Bull. (14) On or about January 22, 2002, the Company filed a Report on Form 8-K announcing the appointment of Dan H. Curlee as Chief Operating Officer and Ron G. Lakey as Treasurer and Chief Financial Officer. (15) On or about February 14, 2002, the Company filed a Report on Form 8-K announcing that the Company had contacted the Securities and Exchange Commission and has requested that trading in the Company's common stock be suspended because the Company believes that its financial statements will have to be restated for at least the past two (2) years. (16) On or about March 1, 2002, the Company filed a Report on Form 8-K announcing the following: 24 (a) Eagle Building Technologies, Inc. ("EGBT") has consented to the entry of a preliminary injunction lawsuit brought against it by the Securities and Exchange Commission ("SEC") in the U.S. District Court for the District of Columbia. The Complaint alleges violations of certain provisions of the Securities Exchange Act of 1934 and certain rules and regulations thereunder, resulting from the company's annual and quarterly reports filed for the periods from December 31, 2000 to September 30, 2001 and certain press releases issued during the fall of 2001. (b) On February 14, 2002 the SEC entered an order directing private investigation and designating officers to take testimony in connection with the company's foreign operations and certain post-September 11th security measures marketed by EGBT, including an airport security system, mail sterilization technology and money laundering detection software. The company has been cooperating with the SEC in its investigation. (c) Effective February 27, 2002, EGBT's President, Chief Executive Officer, and Chairman of the Board of Directors, Anthony M. Damato, resigned his officer and board positions. In addition, on February 18, 2002, EGBT's outside auditors, Tanner & Co., withdrew their report on the December 31, 2000 financial statements and any assurances rendered associated with the financial statements filed in 2001 and 2000. (d) EGBT has recently discovered that its earnings from operations in India for the years 2000-2001 were intentionally fabricated by Mr. Damato. Preliminary indications are that no earnings from such operations existed. In addition, it appears that certain press releases issued by EGBT in the fall of 2001 regarding post-September 11th security measures marketed by EGBT may have been false and misleading. "The company is taking appropriate steps to address these issues and will take whatever future action is necessary based on the results of a comprehensive investigation," according to EGBT Board member Meyer Berman. (e) EGBT has retained the law firm of Fulbright & Jaworski L.L.P., which has engaged the services of Deloitte & Touche LLP to conduct an investigation of business practices and financial accounting controls and identify opportunities for improvement in EGBT's accounting practices. (f) EGBT is currently in discussions with potential investors to provide additional financing for the company. (17) On or about March 18, 2002, the Company filed a Report on Form 8-K announcing the following changes to the make-up of its board of directors: Charles Gargano, Robert Kornahrens and Ralph Thomson have resigned and Howard Ash and Bruce P. Mauldin have been added to the board. Mr. Ash is the Chairman of Claridge Management and a former Chief Financial Officer of Ives Motors Corporation and Chief Operating Officer of BioCard Corporation. Mr. Mauldin is the President and Chief Executive Officer of Texas Airways, Inc., a Texas holding company and consulting group. EGBT also announced that its board of directors has made the following appointments: board member Meyer Berman has been named Acting Chairman of the Board, board member and Chief Operating Officer Dan Curlee has been named to the additional position of President, and board member and Secretary Don Pollock has been named to the additional position of Treasurer. In addition, Ron Lakey has resigned as Chief Financial Officer. Finally, EGBT announced that it is proceeding with the development of residential housing in Puerto Rico using the IMSI building system. 25 (18) On or about April 26, 2002, the Company filed a Report on Form 8-K announcing several class action complaints have recently been filed against Eagle Building Technologies, Inc. ("Eagle") in federal court alleging violations of certain provisions of the Securities Exchange Act of 1934 and certain rules and regulations thereunder. The suits arise from the company's financial statements filed for the periods December 31, 2000 to September 30, 2001 and certain press releases issued during the fall of 2001. Eagle has requested an extension of time to respond to the lawsuit filed against it by the Securities and Exchange Commission ("SEC") based on its settlement discussions with the SEC. Eagle is continuing to work with its outside auditors, Tanner + Co., to restate the above- referenced financial statements and to complete Eagle's financial statement for the period ending December 31, 2001. Eagle recently named Dr. Martin Shubik to its board of directors. Dr. Shubik has a Ph.D. in mathematical economics from Princeton University and has held the Seymour H. Knox Professorship in institutional economics at Yale University since 1975. (19) On or about May 30, 2002, the Company filed a Report on Form 8-K announcing that it has settled the action brought against it by the Securities and Exchange Commission ("SEC") without admitting or denying the allegations contained in the SEC's complaint. As part of the settlement, Eagle has consented to the entry of a final judgment of permanent injunction against it enjoining it from violating the anti-fraud, periodic reporting, and recordkeeping provisions of the federal securities laws. (20) On or about February 6, 2003, the Company filed a Report on Form 8-K announcing that it has named Securities Transfer Corporation as its transfer agent. ITEM 14. CONTROLS AND PROCEDURES ----------------------- Our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively) have concluded, based on their evaluation as of June 30, 2003 ("Evaluation Date"), that the design and operation of our "disclosure controls and procedures" (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") are effective to ensure that information required to be disclosed by us in the reports filed or submitted and reported to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding whether or not disclosure is required. There were no significant changes in our internal controls or in other factors that could significantly affect our internal controls subsequent to the Evaluation Date, nor were there any significant deficiencies or material weaknesses in our internal controls. As a result, no corrective actions were required or undertaken. 26 SIGNATURES In accordance with the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. EAGLE BUILDING TECHNOLOGIES, INC. Dated: July 28, 2003 By:/s/ Meyer A. Berman --------------------------------- Meyer A. Berman, Chairman, CEO, COO, CFO and Director In accordance with the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Capacity Date --------- -------- ---- /s/ Meyer A. Berman Chairman, CEO, COO, July 28, 2003 ------------------------ CFO and Director Meyer A. Berman /s/ Debbie Keogh Director July 28, 2003 ------------------------ Debbie Keogh /s/ Alan Jawitz Director July 28, 2003 ------------------------ Alan Jawitz /s/ Steven A. Levy Director July 28, 2003 ------------------------ Steven A. Levy CERTIFICATIONS I, Meyer A. Berman, certify that: 1. I have reviewed this annual report on Form 10-K of Eagle Building Technologies Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: 27 (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and (c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Meyer A. Berman ----------------------------------- Meyer A. Berman President, Chief Executive Officer, and Chief Financial Officer July 28, 2003 28 CERTIFICATION BY CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report on Form 10-K of Eagle Building Technologies, Inc.(the "Company") for the period ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Meyer A. Berman, President, Chief Executive Officer, and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Meyer A. Berman ----------------------------------- Meyer A. Berman President, Chief Executive Officer, and Chief Financial Officer July 28, 2003 29 EAGLE BUILDING TECHNOLOGIES, INC. Consolidated Financial Statements December 31, 2002 and 2001 EAGLE BUILDING TECHNOLOGIES, INC. Index to Consolidated Financial Statements -------------------------------------------------------------------------------- Page ---- Report of Tanner + Co. F-1 Consolidated balance sheet F-2 Consolidated statement of operations F-3 Consolidated statement of stockholders' equity (deficit) F-4 Consolidated statement of cash flows F-5 Notes to consolidated financial statements F-7 INDEPENDENT AUDITORS' REPORT To The Board of Directors and Stockholders of Eagle Building Technologies, Inc. and Subsidiaries We have audited the consolidated balance sheet of Eagle Building Technologies, Inc. and Subsidiaries (Formerly Eagle Capital International, Ltd.) as of December 31, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Eagle Building Technologies, Inc. and Subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for the years then ended, in conformity with auditing standards generally accepted in the United States of America. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred recurring losses from operations, have negative working capital, a deficit in net equity and has significant litigation and other uncertainties, which raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. Salt Lake City, Utah July 16, 2003 F-1

EAGLE BUILDING TECHNOLOGIES, INC. Consolidated Statement of Cash Flow Continued -------------------------------------------------------------------------------- Supplemental Disclosure of Cash Flows Information December 31, ---------------------------------- 2002 2001 ---------------------------------- Cash paid during the year for Interest $ - $ 173,029 ---------------------------------- Income taxes $ - $ - ---------------------------------- Supplemental Disclosure of Non-Cash Transactions 2002 ---- o During the year ended December 31, 2002, the Company issued common stock valued at $350,000 in consideration for the payment of notes payable and settlement costs. o During the year ended December 31, 2002, the Company acquired equipment with debt in the amount of $307,170. 2001 ---- o During the year ended December 31, 2001, the Company acquired a 75% interest in Salinas Developers Group, Inc. (A Puerto Rico land development company) in exchange for cash of $312,500 and a note payable in the amount of $945,000. In connection therewith, the Company recorded the following: Prepaid expenses $ 10,600 Capitalized development cost 2,629,139 Goodwill 1,096,234 Short-term notes payable (1,396,257) Accounts and advances payable (2,019,394) Accrued expenses (4,568) Deposits (82,500) ------------------ Net cash used (net of $79,246 cash acquired) $ 233,254 ------------------ o During the year ended December 31, 2001, the Company issued common stock valued as follows in consideration for the following: Payment of notes payable $ 2,017,416 Payment of accrued liabilities 101,484 Purchase of unconsolidated subsidiary 1,170,000 -------------------------------------------------------------------------------- F-6 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements December 31, 2002 and 2001 -------------------------------------------------------------------------------- 1. Organization Organization and Principles of Consolidation and The consolidated financial statements include the Summary of accounts of Eagle Building Technologies, Inc. (formerly Significant Eagle Capital International, LTD) (Eagle) and its Accounting wholly-owned subsidiaries. All significant intercompany Policies account balances and transactions have been eliminated in consolidation. The Company had operations in four principal business segments during 2002 and 2001: manufacture and sale of block and wall systems, masonry products manufacturing systems through its wholly owned subsidiary Fleming Manufacturing Company, affordable housing sales, and manufacture and sale of doors. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its 100% owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Cash Equivalents The Company considers all highly liquid temporary investments with an original maturity of three months or less to be cash equivalents. Inventories Inventories are recorded at the lower of cost or market, cost being determined on the first-in first-out (FIFO) method. Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Depreciation and amortization on capital leases and property and equipment is determined using the straight-line method over the estimated useful lives of the assets or terms of the lease. Expenditures of maintenance and repairs are expensed when incurred and betterments are capitalized. Gains and losses on sale of property and equipment are reflected in operations. Intangible Assets Intangible assets consist of license rights to certain production processes and goodwill. License rights are amortized on the straight-line method over a twenty year period. -------------------------------------------------------------------------------- F-7 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 1. Organization Impairment of Long-Lived Assets and The Company reviews its long-lived assets including Summary of goodwill, for impairment whenever events or changes in Significant circumstances indicate that the carrying amount of the Accounting assets may not be recoverable through undiscounted Policies future cash flows, such loss is recognized in the Continued statement of operations. Revenue Recognition The Company recognizes revenue from manufacturing and related activities when evidence exists that an arrangement exists between the Company and its customers, delivery of the Company's product has occurred, the Company's selling price to its customers is fixed, and collectibility is reasonably assured. Sales revenues and profits from land sales and homebuilding activities are recognized at closing only when sufficient down payments have been obtained, possession and other attributes of ownership have been transferred to the buyer, and the Company has no significant continuing involvement. The cost of acquiring and developing land and the cost of homebuilding construction are allocated to these assets and charged to cost of sales as the related inventories are sold. Interest costs related to homebulding and land assets are allocated to these assets based on their development stage and relative book value. The portion of interest allocated to land, building, lots under development, and homebuilding construction during the development and construction period is capitalized to the extent of qualifying assets. Remaining interest costs are expensed. No interest has been capitalized during 2002 and 2001. The Company carries land, development and homebuilding costs at the lower of cost or net realizable value. Development Costs Construction costs are capitalized as long as the asset is under development. Upon completion of construction, the development costs are included as a component of real estate inventory. Development costs determined to be unrecoverable are written off. Income (Loss) Per Share The computation of basic loss per common share is based on the weighted average number of shares outstanding during each year. -------------------------------------------------------------------------------- F-8 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 1. Organization Income (Loss) Per Share - Continued and The computation of diluted earnings per common share is Summary of based on the weighted average number of shares Significant outstanding during the year, plus the common stock Accounting equivalents that would arise from the exercise of stock Policies options and warrants outstanding, using the treasury Continued stock method and the average market price per share during the year. Options to purchase 208,333 shares of common stock at prices ranging from $12.00 to $18.00, per share were outstanding at December 31, 2002 and 2001, but were not included in the diluted earnings (loss) per share calculation because the effect would have been antidilutive. Income Taxes Income taxes are recorded using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date Stock-Based Compensation The Company accounts for stock-based compensation under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income (loss), as all options vested had an exercise price equal to the market value of the underlying common stock on the date of grant or the date of repricing. No options were issued or vested during the years ended December 31, 2002 and 2001, therefore, there would be no effect on net income and earnings per share if the company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of receivables. In the normal course of business, the Company provides credit terms to its customers. Accordingly, the Company performs ongoing credit evaluations of its customers and maintains allowances for possible losses which, when realized, have been within the range of management's expectations. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. -------------------------------------------------------------------------------- F-9 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 1. Organization Use of Estimates in the Preparation of Financial and Statements Summary of The preparation of financial statements in conformity Significant with generally accepted accounting principles requires Accounting management to make estimates and assumptions that affect Policies the reported amounts of assets and liabilities and Continued disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications Certain reclassifications have been made to the prior year's financial statements in order to conform them to the classifications used for the current year. 2. Going The financial statements have been prepared assuming Concern that the Company will continue as a going concern. As of December 31, 2002 the Company had a deficit in working capital, and had incurred significant losses from operations since its inception. As further described in Note 15 the Company has been named in a number of significant lawsuits and other disputes which could result in significant additional claims against the Company's limited assets and limit its ability to offer the products and services currently offered by the Company. Management is currently attempting to resolve the litigation and other disputes and to seek additional equity financing. Since a significant portion of the Company's losses have been a result of businesses which have been abandoned or discontinued and the result of actions of the Company's former President and Chairman of the Board of Directors, management is hopeful that its equipment manufacturing and real estate development operations will generate sufficient profits in order to allow the Company to become profitable. However, there are no assurances these operations will result in profit for the Company or that the Company will be successful in resolving its litigation in a manner which does not have an adverse impact on the financial position of the Company. -------------------------------------------------------------------------------- F-10 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 3. Detail of Certain Balance Sheet Accounts December 31, ----------------------------------- 2002 2001 ----------------------------------- Receivables: Trade receivables $ 822,150 $ 858,365 Less allowance for doubtful accounts (519,522) (100,000) ----------------------------------- $ 302,628 $ 758,365 ----------------------------------- Inventories: Finished goods/purchased parts $ 37,446 $ 644,549 Work-in-process 958,668 139,361 Raw material 878,134 741,221 ----------------------------------- $ 1,874,248 $ 1,525,131 ----------------------------------- 4. Property and Property and equipment consist of the following: Equipment December 31, ----------------------------------- 2002 2001 ----------------------------------- Equipment $ 4,710,418 $ 4,317,646 Furniture and fixtures 171,232 165,489 Leasehold improvements 124,507 124,507 Transportation equipment 61,146 61,069 ----------------------------------- 5,067,303 4,668,711 Less accumulated depreciation and amortization (2,474,535) (1,721,957) ----------------------------------- $ 2,592,768 $ 2,946,754 ----------------------------------- -------------------------------------------------------------------------------- F-11 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 4. Property and During the year ended December 31, 2001 the Company Equipment recorded impairment of equipment in the amount of Continued $399,600. The equipment was purchased in connection with the acquisition of CT India. These acquisitions were made to use in the production process in India. During 2001, the Company was unable to successfully begin operations in India and has been unable to provide the resources necessary to make India successful. As a result, the Company determined the equipment to be impaired and recorded the impairment loss. 5. Acquisitions Business Dimensions, Inc. and Master SRL In August 2000, the Company acquired all of the assets of Business Dimensions, Inc., whose major asset is the license to sell and distribute to the North American market security doors manufactured by Master SRL (Master) (an Italian door manufacturer). The Company paid no consideration in the acquisition, but was required to make certain payments in the future based on specific events. During the year ended December 31, 2001, the Company issued 166,667 shares valued at $1,170,000 as consideration. This amount has been included as part of the total consideration paid for Master, (see below). The results of operations of Business Dimensions, Inc. were not significant for the year ended December 31, 2000, 2001 and 2002. During October 2001, the Company entered into agreements to purchase 100% of the outstanding shares of Master for approximately $8,931,000 cash from the individual shareholders of Master. As of December 31, 2001, $6,280,780 was due under these agreements to complete the acquisition. Since the Company determined it did not have the resources to complete the purchase agreements it has decided to forfeit its deposit for purchase of shares not fully paid for and attempt to facilitate purchase of the balance of the shares by another party which could require the Company to reduce its current ownership of Master. -------------------------------------------------------------------------------- F-12 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 5. Acquisitions Business Dimensions, Inc. and Master SRL - Continued Continued During the year ended December 31, 2001, the Company wrote down its net investment in Master to 21% of the recorded book value of Master or $386,820. This write down of $3,581,183 during the year ended December 31, 2001 is included in the accompanying statement of operations under the caption "Impairment of investment in unconsolidated subsidiaries". As the Company does not control Master and anticipates its investment will decrease to less than 20%, the investment has been accounted for using the cost basis of accounting until future events dictate a change in the Company's current plans. During the year ended December 31, 2001, the Company incurred the following costs in connection with its evaluation and eventual purchase of 21% of Master. Purchase of 21% of Master $ 1,677,845 Non-refundable deposit towards the purchase of the remaining 79% of Master 971,942 Issuance of 166,667 shares for North American license rights (see above under Business Dimensions, Inc.) 1,170,000 Other costs including travel, consultation and accounting fees 148,216 --------------- Total paid 3,968,003 Impairment (3,581,183) --------------- Net investment as of December 31, 2002 and 2001 $ 386,820 --------------- -------------------------------------------------------------------------------- F-13 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 5. Acquisitions Salinas Developers Group, Inc. Continued ------------------------------ During October 2001, the Company acquired 75% of the common stock of Salinas Developers Group, Inc. (Salinas) (a Puerto Rico land development company) in exchange for cash of $312,500 and a note payable in the amount of $945,000. In connection therewith, the Company recorded the following: Prepaid expenses $ 10,600 Capitalized development cost 2,629,139 Goodwill 1,096,234 Short-term notes payable (1,396,257) Accounts and advances payable (2,019,394) Accrued expenses (4,568) Deposits (82,500) --------------- Net cash used (net of cash acquired of $79,246) $ 233,254 --------------- 6. Intangible Intangible assets consist of the following: Assets December 31, ------------------------ 2002 2001 ------------------------ Goodwill $ - $ 2,368,856 License rights 809,581 5,695,000 Accumulated amortization - (633,506) ------------------------ $ 809,581 $ 7,430,350 ------------------------ Amortization expense was $284,747 and $462,535 for the years ended December 31, 2002 and 2001, respectively. On January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 changes the accounting for goodwill and intangible assets with indefinite lives from an amortization method to an impairment approach. -------------------------------------------------------------------------------- F-14 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 6. Intangible As of December 31, 2002, the Company determined that the Assets remaining goodwill (from previous acquisitions of Continued Fleming Manufacturing Company and Salinas) was impaired and recorded an impairment loss in the accompanying statement of operations of $2,305,225. As of December 31, 2002, the Company determined that the license rights were impaired and recorded an impairment loss in the accompanying statement of operations of $4,030,797 ($4,885,419 less accumulated amortization of $854,622). During the year ended December 31, 2001 the Company recorded additional goodwill due to its purchase of Salinas in the amount of $1,096,234 and also recorded an impairment loss due to the write-off of goodwill purchased in connection with the acquisition of Great Wall New Building Systems in the amount of $1,696,309 ($1,884,787 less accumulated amortization of $188,478). This acquisition was made to obtain license rights to the Company's production process in The People's Republic of China. In 2000, these rights allowed the Company to enter into a joint venture in The People's Republic of China which were also written off in 2001 as an impairment loss in the amount of $622,618 and is included in the accompanying 2001 statement of operations under the caption, "Impairment of Investment in Unconsolidated Subsidiaries" (see Note 7). During 2001, the Company, through the joint venture, was unable to successfully begin operations, and has been unable to provide the resources necessary to make Great Wall New Building Systems and the joint venture successful. As a result, the Company determined the goodwill at December 31, 2001 in Great Wall New Building Systems and the corresponding joint venture is impaired and has recorded impairment losses in the amount of $1,696,309 for goodwill and $622,618 for its investments in the joint venture. 7. Joint Venture During the year ended December 31, 2000, the Company entered into a joint venture in the People's Republic of China for the primary purpose of producing and selling cement building blocks, bonding cement, polystyrene foam insulation, and related technical services. The Company has a fifty-five percent interest in the joint venture, however, due to the nature of the business environment in China, the Company is not considered for accounting purposes to exert significant control and the joint venture has been accounted for under the equity method. -------------------------------------------------------------------------------- F-15 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 7. Joint Venture During the years ended December 31, 2002 and 2001, the Continued joint venture was not successful in beginning significant operations, or in generating significant revenues. Additionally, the Company has been unable to devote the needed resources to the joint venture. As a result, the Company determined its investment in the joint venture to be impaired and has recorded an impairment in the amount of $622,618 during the year ended December 31, 2001. 8. Notes Payable Notes payable consist of the following at December 31: 2002 2001 --------------------------------- Notes payable to the Company's chairman of the board of directors, due on demand with no stated interest $ 5,028,354 $ - Note payable to an individual, due December 31, 2001, with interest at 6.20% secured by property and equipment (related to purchase of Fleming). The note is currently in default 2,125,000 2,125,000 Advance payable to individuals and or entities, due on demand with no stated interest rate 903,000 - Notes payable to individuals and or entities, due September 1, 2003, with interest at 8.5%, secured by assets 642,000 - Note payable to an entity, due on demand with interest at 8% secured by real property. 453,601 451,255 Note payable to the Company's chairman of the board of directors, due October 2001 with interest at 10% 380,000 380,000 -------------------------------------------------------------------------------- F-16 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 8. Notes Payable Continued Bank line of credit agreement which allows the Company to borrow a maximum amount of $350,000 at an interest rate equal to the bank's prime rate plus 1.5% (5.75% at December 31, 2002). The line of credit is secured by accounts receivable, inventory, furniture, fixtures and equipment 346,329 350,000 Notes payable to relatives of the Company's chairman of the board of directors, due September 1, 2003, with interest at 8.5%, secured by assets 240,000 - Convertible note payable to an individual, due September 2001 with interest at 10%, secured by property and equipment. The note is currently in default. 200,000 200,000 Obligation payable to an individual, due on demand with no stated interest rate, secured by equipment 100,000 230,000 Note payable to an individual in monthly installments including interest at 6.2%, secured by property and equipment (related to the purchase of Fleming) 35,341 283,418 Advance payable to a previous employee and shareholder, due on demand with no stated interest rate 20,000 20,000 Note payable to an individual for purchase of Salinas due on demand with no stated interest rate - 945,000 -------------------------------------------------------------------------------- F-17 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 8. Notes Payable Continued Convertible note payable to an entity, due August 2001 with interest at 4%, unsecured - 350,000 --------------------------------- Total notes payable $ 10,473,625 $ 5,334,673 --------------------------------- 9. Long-Term Long-term debt consists of the following at December 31: Debt 2002 2001 --------------------------------- Notes payable convertible into common stock at $10 per share, to the Company's chairman, due July 2, 2004, with interest at 10%, secured by Company stock $ 3,340,000 $ 3,340,000 Notes payable convertible into common stock at $10 per share, to organizations and individuals, including $250,000 due to related parties or entities, due July 2, 2004, with interest at 10%, secured by Company stock 2,000,000 2,000,000 Convertible note payable to the Company's chairman, due October 2004 with interest at 10%, unsecured 1,000,000 1,000,000 Capital lease obligation 277,425 29,335 --------------------------------- 6,617,425 6,369,335 Less current portion (103,443) (29,335) --------------------------------- Long-term debt $ 6,513,982 $ 6,340,000 --------------------------------- Future maturities of notes payable and long-term debt are as follows: Year Ended December 31, Amount ----------------------- ------------------ 2003 $ 10,577,068 2004 6,446,609 2005 67,373 ------------------ $ 17,091,050 ------------------ -------------------------------------------------------------------------------- F-18 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 10. Capital The Company leases certain equipment under Leases noncancellable capital leases. Assets held under capital leases were included in equipment as follows: December ---------------------------------- 2002 2001 ---------------------------------- Equipment $ 307,170 $ - Accumulated amortization (20,479) - ---------------------------------- $ 286,691 $ - ---------------------------------- Amortization expense on capital leases for the years ended December 31, 2002 and 2001 were $20,479 and $0, respectively. Future payments under the capital leases are as follows: Year ---- 2003 $ 118,980 2004 118,980 2005 69,405 ------------------ Total payments 307,365 Less: amount of interest (29,940) ------------------ Net capital lease principal 277,425 Less: current maturities (103,443) ------------------ Total long-term $ 173,982 ------------------ 11. Accrued During February 2002, the Company became aware that its Settlement Chairman of the Board of Directors and former President Costs had prepared fraudulent documents to misrepresent the revenues, costs and cash associated with operations conducted by a subsidiary in India and concerning certain loans and stock transactions. This resulted in the Company's financial statements being restated as of December 31, 2000. -------------------------------------------------------------------------------- F-19 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 11. Accrued As a result, the Company recorded settlement costs Settlement claims and litigation related primarily to the accrual Costs for estimated amounts the Company may owe and the write- Continued down of assets as the result of anticipated future settlements. 12. Income Taxes The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate to net loss before provision for income taxes for the following reasons: Year Ended December 31, --------------------------------- 2002 2001 --------------------------------- Federal income tax benefit at statutory rate $ 6,851,000 $ 8,027,000 Stock issued for settlement costs (132,000) - Valuation allowance (6,719,000) (8,027,000) --------------------------------- $ - $ - --------------------------------- Deferred tax assets (liabilities) are comprised of the following at December 31: 2002 2001 --------------------------------- Net operating loss carry forward $ 11,389,000 $ 6,810,000 Depreciation and amortization (478,000) (84,000) Goodwill impairment 2,101,000 1,236,000 Investment impairment 1,896,000 1,896,000 License rights impairment 1,512,000 - Property and equipment Impairment 150,000 150,000 Allowance for doubtful accounts 195,000 38,000 --------------------------------- 16,765,000 10,046,000 Less valuation allowance (16,765,000) (10,046,000) --------------------------------- $ - $ - --------------------------------- A valuation allowance has been recorded for the full amount of the deferred tax asset because it is more likely than not that the deferred tax asset will not be realized. -------------------------------------------------------------------------------- F-20 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 12. Income Taxes At December 31, 2002, the Company has approximately Continued $30,370,000 of net operating loss carryforwards to offset future taxable income. These carryforwards begin to expire in 2019. 13. Stock Options and Stock- Based Compensation Exercise Amount Price --------------------------------- Outstanding at January 1, 2001 208,333 $ 12.00 - 18.00 Granted - - Exercised - - Expired - - --------------------------------- Outstanding at December 31, 2001 208,333 $ 12.00 - 18.00 Granted - - Exercised - - Expired - - --------------------------------- Outstanding at December 31, 2002 208,333 $ 12.00 - 18.00 --------------------------------- The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123 Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized in the financial statements for stock options granted to employees. Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant date consistent with the provisions of SFAS No. 123, the Company's net loss and loss per share would have been as indicated below: Year Ended December 31, --------------------------------- 2002 2001 --------------------------------- Net loss - as reported $ (18,268,391) $ (21,404,016) Net loss - pro forma $ (18,268,391) $ (21,404,016) Loss per share - as reported $ (2.39) $ (3.59) Less per share - pro forma $ (2.39) $ (3.59) -------------------------------------------------------------------------------- F-21 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 13. Stock Options The fair value of each option granted was estimated and Stock- on the date of grant using the Black-Scholes option Based pricing model with the following assumptions: Compensation Continued Expected Dividend yield $ - Expected stock price volatility 61% Risk-free interest rate 6.0% Expected life of options 3-5 years The following table summarizes information about stock options outstanding at December 31, 2002: Options and Warrants Options and Warrants Outstanding Exercisable ---------------------------------------------------------------- Weighted Average Remaining Weighted Weighted Range of Contractual Average Average Exercise Number Life Exercise Number Exercise Prices Outstanding (Years) Price Exercisable Price ------------------------------------------------------------------------------- $ 12.00 141,667 0.19 $ 12.00 141,667 $ 12.00 18.00 66,666 2.82 18.00 66,666 18.00 ------------------------------------------------------------------------------- $ 12.00-18.00 208,333 1.03 $ 13.92 208,333 $ 13.92 ------------------------------------------------------------------------------- 14. Redeemable In connection with the issuance of debt the Company Common issued 155,834 shares of common stock. The debt Stock agreement allows the holder of the shares to require the Company to repurchase those shares for $7.50 per share. Consequently, the Company recorded a liability for these shares equal to the estimated fair value of $1,168,748. At December 31, 2002 and 2001, the option price of the shares were more than the market price of the Company's stock. -------------------------------------------------------------------------------- F-22 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 15. Commitments Royalty Agreements and During the year ended December 31, 2000 the Company Contingencies settled litigation with an entity concerning certain license rights. Under the terms of the settlement the entity agreed to ratify licenses previously granted to the Company for China, India and Mexico for a one time license fee of $25,000 each. In addition, the entity agreed to issue the Company a license for Southern Europe for a license fee of $50,000, and to recognize a previous license for Romania granted to a Company investee. The settlement agreement requires the Company to pay a royalty of 4.5% of gross revenues from licensed products. During 2001, the Company entered into a license agreement for Puerto Rico. Approximate minimum royalties are as follows: Year Ending December 31, Amount ------------------------ --------------- 2003 $ 532,000 2004 $ 570,000 2005 $ 570,000 2006 $ 570,000 During 2002 and 2001 the Company paid $164,500 and $451,410, respectively under these agreements. The Company has also asserted a claim for a credit or refund of approximately $290,124 for overpayment of royalties in 2001. The Company has also established a valuation allowance for this claim due to an uncertainty concerning the ultimate realization of those amounts. As described in Note 16, there is litigation concerning the Company's rights under these agreements. Other Claims A former officer of the Company confirmed a claim against the Company for approximately $615,000 as of December 31, 2002 for reimbursable expenses, compensation pursuant to an acquisition agreement and also failure to timely remove the restrictive legend on shares of the Company's common stock held by him. The Company has not recorded any of these claims as management disputes the claims and believes they are without merit. -------------------------------------------------------------------------------- F-23 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 15. Commitments Other Claims - Continued and On approximately April 25, 2001, the Company purchased Contingencies equipment from an individual, and through December 31, Continued 2002, the Company has paid its obligations to the individual except for $100,000 of outstanding principal, which is recorded in the accompanying financial statements as a note payable. The individual has confirmed a claim against the Company for additional compensation for non-payment since the date of purchase, accrued interest since the date of purchase and $.10 per unit of inventory that the Company has produced using this equipment since the date of purchase and through December 31, 2002. The Company has not recorded any of the additional compensation in the accompanying financial statements as management disputes the claims. A possible assessment exists for the Company's alleged failure to conduct an archaeological study of the site where a residential project is being developed by the Company in Puerto Rico. A potential claim exists from the federal and state taxing authorities for the Company's alleged failure to withhold and deduct the FICA tax and Puerto Rico income taxes on compensation paid to employees, officers and/or directors of the Company. The Company is also subject from time to time to lawsuits and other claims arising in the ordinary course of business. In the opinion of the Company's management, these matters are adequately covered by insurance or, if not so covered, are without merit or are of such nature or involve amounts that would not have a material adverse effect on the Company's financial condition, results of operations or cash flows if decided adversely. 16. Litigation Securities and Exchange Commission SEC v. Eagle Building Technologies, Inc. and Anthony D'Amato (Civil Action No. 1:02CV397ESH D.D.C.) The SEC and the Company agreed to settle the lawsuit in May 2002. The Court signed the settlement papers on or about May 30, 2002, entering a permanent injunction against the Company for any future violations of Sections 10 (b), 13 (a), 13 (b) (2) (A), and 13 (b) (2) (B) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-13, and 13b2-1. The Company made no admission or denial of liability in connection with the settlement. -------------------------------------------------------------------------------- F-24 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 16. Litigation Securities and Exchange Commission - Continued Continued In March 2003, Anthony D'Amato was ordered to forfeit $56,623 in trading profits plus prejudgment interest of $5,637, and agreed to cancel 367,742 shares of Eagle Building stock, including 286,500 shares of stock he received as compensation for acting as an officer and director of the Company and an additional 81,242 shares to satisfy the requirement that he repay his trading profits and prejudgment interest that had been given as part of his compensation. In October 2002, D'Amato consented to entry of a permanent injunction that prohibits him from making false statements in press releases and reports made to the SEC, creating false business records, and providing false information to the Company's auditors in violation of the anti-fraud, periodic reporting and internal record-keeping provisions of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13b2-1, and 13b2-2. D'Amato is also barred from serving as an officer or director of any publicly traded company. Mr. D'Amato pleaded guilty in a criminal case to one count of securities fraud in the Southern District of Florida before United States District Judge Jose E. Martinez, and is scheduled to be sentenced criminally for his conduct in relation to the Company in July. Pursuant to the Victims Recovery Act, the Company intends to file a claim for restitution. Class Actions As previously reported, the Company has been named as a defendant in various class action suits alleging securities violations by Eagle pursuant generally to Section 10(b) and 20(a) of the Exchange Act and Sec Rule 10b-5 promulgated thereunder. The complaints generally allege that Eagle intentionally perpetrated a fraud upon the public by the dissemination of false and misleading information. By order dated July 31, 2002, the United States District Court for the Southern District of Florida consolidated all of the class action cases, appointed certain parties as lead plaintiffs and the attorneys for the plaintiffs as lead co-counsel for the class. The new case is styled In Re Eagle Building Technologies, Inc., Securities Litigation, Case Number 02-80294-CIV-RYSKAMP. -------------------------------------------------------------------------------- F-25 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 16. Litigation Class Actions - Continued Continued Kelso Capital et al. v. Eagle Building Technologies, Inc., Anthony D'Amato, Paul-Emile Desrosiers and Tanner + Co. (Southern District of Nevada, Civil Case No. CV-S-02-0367-PMP-PAL, filed March 15, 2002). Alan Davidson and Victor Kashner v. Eagle Building Technologies, Inc. (United States District Court, Southern District of Florida, Case No. 02-80323-CIV-RYSKAMP, filed March 26, 2002) Marc Newman, Kenneth Wait, Dr. Anthony Roberts and Dana Davis, et al. v. Eagle Building Technologies, Inc., Anthony D'Amato, Dr. Ralph Thomson, Andros Savvides, Wilfred G. Mango, Jr., Donald Pollock, Robert Kornahrens, Charles A. Gargano, Samuel Gejedson, Meyer A. Berman and Tanner + Co. (United States District Court, Southern, District of Florida, Case No. 02-80294-CIV-RYSKAMP, filed April 5, 2002) Inglewood Holdings, Ltd. V. Eagle Building Technologies, Inc., and Anthony D'Amato (United States District Court, Southern District of Florida, Case No. 02-80340-CIV-MIDDLEBROOKS, filed April 16, 2002) David D. Pain v. Eagle Building Technologies, Inc. and Anthony D'Amato (United States District Court, Southern District of Florida, Case No. 02-80372-CIV-HURLEY, filed April 24, 2002) Jeff Gass v. Eagle Building Technologies, Inc., Anthony D'Amato, Paul-Emile Desrosiers and Tanner + Co. (United States District Court, District of Nevada, Case No. CV-S-02-0640-PMP-RJJ, filed May 6, 2002) Robert Gluck v. Eagle Building Technologies, Inc. et al. (United States District Court, Southern District of Florida, Case No. 02-CV- 80302, filed April 8, 2002 Guerrilla IRA Partners, L.P. v. Eagle Building Technologies, Inc. and Anthony D'Amato (United States District Court, Southern District of Florida, Case No. 02-CV-80403, filed May 3, 2002) -------------------------------------------------------------------------------- F-26 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 16. Litigation Additional Securities Litigation Continued Mark Neuman v. Anthony D'Amato, et al. and Eagle Building Technologies, Inc. (as a nominal defendant) (15th Judicial Circuit in and for Palm Beach County, Florida, Case No. CA 02-05560-AG). This complaint was filed on May 9, 2002, as a shareholders derivative action alleging breach of fiduciary duty, misappropriation of confidential information, and contribution and indemnification. The Plaintiff is seeking damages in excess of $15,000. The Company filed a motion to dismiss the complaint on July 3, 2002. The Court has not yet issued a ruling on the motion. No discovery has occurred and no trial date has been set. We are unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. Co-Defendant Robert Kornahrens recently filed a cross-claim for legal fees against the Company. Anthony I. Bentley, James Bruce Whiting and Beverly D. Whiting v. Eagle Building Technologies, Inc. (Third Judicial District Court, Salt Lake City, Utah, Case No. CA 02-0901808). The complaint alleges breach of contract, unjust enrichment and conversion for failure to issue securities to the Plaintiffs. Trust #191190MAN(A) v. Eagle Building Technologies, Inc. et al. (US District Court, District of Utah, Central Division, Case No. 02-CV-202CV-0502ST). This is an action brought by a Trust whose agent is Clealon B. Mann. The Trust's sole cause of action is brought under RICO and alleges that Eagle failed to remove the Rule 144 legend from 8,333 shares of Eagle stock, claimed the shares were attached pursuant to a pending lawsuit, and titling shares in the name of Clealon Mann. Plaintiff's claimed damages are the amount of the Eagle shares at the time it would have sold them. However, Plaintiff does not indicate when such a sale would have occurred. As with the McConkie lawsuit, General Securities Transfer Agency (GSTA) and Iverna Morgan, GSTA's president, were named as defendants and Eagle has agreed to indemnify them. The Company is defending this action based upon the following grounds: (a) the shares were titled in the name of the trust, and listed Mann only as trustee; (b) the shares were issued without restriction in August 2000; and (c) at least two writs of execution were issued in 2001, both of which specifically attached the Trust's shares and prevented the sale of said shares. The Company has filed an answer to the Complaint denying all allegations. -------------------------------------------------------------------------------- F-27 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 16. Litigation Additional Securities Litigation - Continued Continued F. Briton McConkie and Stephen R. Fey v. Eagle Capital International, and General Securities Transfer Agency, Inc. (United States District Court for the Central Division of Utah, Civil Case No. 2:01-CV0-0950 ST). This is an action brought by Brinton McConkie and Stephen Fey on the grounds of breach of contract. The plaintiffs allege that Eagle wrongfully refused to transfer 200,000 shares, represented by certificates number 432114 and 432119. Plaintiffs have produced affidavits of Doug Dent and Ralph Thompson, former members of the Eagle Board of Directors, in which both men state that the shares were properly issued. The potential damages in this matter would likely be the value of the shares in April 2001, when Plaintiffs initially requested the shares transferred. The Company's asserted defense is that the shares in question were never properly issued and there was a lack or failure of consideration. Discovery has just begun. Additionally, GSTA, the agency handling Eagle's stock certificates, was named as a defendant. Eagle has agreed to indemnify GSTA in this matter. Deborah Donoghue v. Eagle Building Technologies,Inc., U.S. District Court for the Southern District of New York Case 03CV2472. This stockholders derivative suit seeks to recover alleged "short swing" profits realized by certain beneficial owners of the Company's common stock in violation of Section 16(b) of the Securities Exchange Act of 1934. The Company's position is that the claims are satisfied because the proceeds of such sales in excess of any imputable profits were given over to the Company and/or that in any case many of the transactions identified in the claims are exempt transactions. A pre-trial conference has been scheduled in the case. Other Litigation Polysolutions Corp. and Bullhide Liner of Broward County, Inc. v. Eagle Capital International, Inc. (14th Judicial Circuit Court in and for Palm Beach County, Florida, Civil Case No. CA-01-9017AB). The complaint was filed on September 4, 2001. On or about April 23, 2002, Plaintiffs sought to amend the complaint to name Anthony D'Amato, Ralph Thomson, Richard Lahey, Andros Savvides, Wilfred Mango, Donald Pollock, Robert Kornahrens, Charles Gargano, Samuel Gejdenson, Meyer Berman, Howard Ash, and Bruce Mauldin as individual defendants. The Amended Complaint alleges counts for breaches of contract, fraud in the inducement and breach of fiduciary duty. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. A cross claim was recently filed by former Director Kornahrens in this matter, complaining that the Company was failing to honor its obligations to defend him. The Company believes that this cross claim will be withdrawn in light of the substitution of new counsel. -------------------------------------------------------------------------------- F-28 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 16. Litigation Other Litigation - Continued Continued Actionable Intelligence Technologies, Inc. v. Eagle Building Technologies, Inc. (15th Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA 02-03197 AB). A complaint was filed on March 12, 2002, by a company based in San Diego, California, arising out of the Company's alleged breach of a contract between the parties, and seeking damages in excess of $15,000. The plaintiff claims that the Company owes more than $820,000 for consulting services rendered, and up to $5,000,000 for services that were to be performed in the future. On April 30, 2002, the Company filed an answer to the complaint denying liability and asserting several affirmative defenses. Discovery is in its preliminary stages. No trial date has been set, but the case is subject to mandatory mediation. Failing settlement, the Company intends to defend this action vigorously. We are unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. Taskin Ticaret, LTD. v. Fleming Manufacturing Company, Inc. (Circuit Court for Crawford County, Missouri, Case No. CV100-269CC). A judgment of $119,215 was entered into against Fleming on May 29, 2002 following a two day jury trial. Because all of the assets of Fleming serve as collateral to lending institutions or other secured creditors, Fleming does not have the authority or ability to pay the judgment. The matter is on appeal. -------------------------------------------------------------------------------- F-29 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 16. Litigation Other Litigation - Continued Continued J.C. Group Corp. and Jose A. Camacho v. Salinas Developers, Inc., Eagle Building Technologies (Civil No. G-CD2002-0109; Sala 302). On April 18, 2002, Plaintiffs J.C. Group, Inc. ("J.C. Group") and Jose A. Camacho ("Camacho") filed a complaint against Salinas Development Group, Inc. ("SDG"), a Puerto Rico corporation controlled by the Company and Eagle Building Technologies, of Puerto Rico, Inc. ("Eagle-PR"), a wholly-owned subsidiary of the Company in the Federal District Court of the Commonwealth of Puerto Rico claiming $1,260,299 plus damages and legal fees. SDG timely filed the Answer to the Complaint and a Counterclaim. SDG alleges in its Counterclaim that Plaintiffs owe $4,110,000 to SDG on account of fund deviation, false and excessive invoicing and damages. Eagle-PR filed a motion for summary judgment based on the fact that it is not liable for the acts of SDG and that Eagle-PR is not the stockholder of SDG. In addition, SDG filed a Third Party Complaint against Camacho for $5,910,000 claiming: 1) poor performance as project manager; 2) fund deviation; 3) false invoicing; 4) purchase of land in his own name with SDG funds; 5) breach of fiduciary duty; 6) interference with SDG's business; and 7) failure to make capital contributions. On June 20, 2002, Plaintiffs filed an Amended Complaint against SDG and Eagle-PR, and increased the amount claimed to $2,872,857, including the lost profits of Camacho. As of the date of this filing, because of the complex nature of the matters involved, the outcome of this case cannot be predicted. Paul-Emile Desrosiers v. Eagle Building Technologies, Inc. (15th Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA 02-03431 AA). This is an action filed against the Company on April 1, 2002, by the former President and Chief Executive Officer of the Company seeking damages in excess of $15,000 for allegedly owed compensation and reinstatement as an officer and director. The Company filed a motion to dismiss five of the six counts in the complaint; the Court heard oral argument on June 28, 2002. On July 25, 2002, the Court dismissed without prejudice the counts seeking declaratory relief and damages for retaliation, while dismissing with prejudice the counts requesting injunctive relief. The only count remaining at the time of this Report is Desrosiers's claim for Breach of Contract. Discovery is in its preliminary stages. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. -------------------------------------------------------------------------------- F-30 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 16. Litigation Other Litigation - Continued Continued Jennifer Nina v. Eagle Building Technologies, Inc. (15th Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA 02- 4297AE). This complaint was filed April 10, 2002, alleging claims for unlawful termination, retaliation, breach of contract and unpaid wages, and seeking damages in excess of $15,000. On or about May 6, 2002, the Company filed a motion to dismiss certain claims, which alleged retaliatory discharge. The Court, by order entered June 26, 2002, granted that motion, dismissing those claims without prejudice. Discovery is in the preliminary stages. A trial date is set, but the case is subject to mandatory mediation. Failing settlement, the Company intends to defend this action vigorously. We are unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. Julio Cruz, Jr. v Eagle Building Technologies, Inc. (15th Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA 02- 005668-AF). This is an action filed on May 15, 2002, by a former employee of the Company seeking damages in excess of $15,000 for wrongful termination, retaliation, unpaid wages, and breach of contract. The Company filed a motion to dismiss certain claims, which alleged retaliatory discharge. The Court has not yet ruled on that motion, although Plaintiff's counsel has agreed to entry of an order dismissing these claims without prejudice. Discovery is in the preliminary stages. No trial date has been set. A trial date is set, but the case is subject to mandatory mediation. Failing settlement, the Company intends to defend this action vigorously. We are unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. -------------------------------------------------------------------------------- F-31 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 16. Litigation Other Litigation - Continued Continued Gina Nicoleau v. Eagle Building Technologies, Inc. (15th Judicial Circuit in and for Palm Beach County, Florida, Civil Case No. CA-02- 05675-AH). This complaint was filed on June 14, 2002, by a former employee of the Company seeking damages in excess of $15,000 for wrongful termination, retaliation, unpaid wages, and breach of contract. Plaintiff's counsel has advised us that he intends to amend the complaint to drop the retaliatory discharge claims. Discovery is in the preliminary stages. A trial date is set, but the case is subject to mandatory mediation. Failing settlement, the Company intends to defend this action vigorously. We are unable to express an opinion regarding the outcome of this litigation or as to any potential loss or range of loss to the Company in the event that either a favorable or unfavorable outcome results. The Company is presently substituting the law firm of Adorno and Yoss, located in Miami, West Palm Beach, Boca Raton and Fort Lauderdale, and Naples Florida, as counsel in this matter. A.R.H. Family et al. v. Eagle Building Technologies, Inc., Case Number GN203813, 345th Judicial District, Travis County, Texas.; La Petrona Ltd. v. Eagle Building Technologies, GN300161, 250th Judicial District, Travis County Texas. These suits allege that the Company fraudulently solicited investment monies from a syndicate of individual investors organized by their investment advisor Lee Urbina. The Company takes the position that the fraud was perpetrated on these investors by Anthony D'Amato on his own account and without the knowledge of the Company through the creation of an investment vehicle entirely under his personal control, without authorization of the Company, and for his own purposes. Eagle Building Technology Inc., v. Zurich American Insurance Company, 02-22611-CIV-Ryskamp, U.S. District Court for the Southern District of Florida. This case approved a settlement between the Company and its insurance carrier whereby certain funds were released to the Company pursuant to a binder for D&O and liability coverage. Under the terms of the Settlement, the former officers are barred from claiming coverage under the binder and the funds are available to the Company for the costs of defending liability claims asserted against the Company. -------------------------------------------------------------------------------- F-32 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 16. Litigation Other Litigation - Continued Continued IMSI, Inc. v. Eagle Building Technologies, Inc., U.S. District Court, Central Division, Utah. The suit seeks damages and an injunction for alleged infringement of IMSI patents related to the Company's use of the IMSI system in Puerto Rico. The Company is of the view that the claims have no merit. The Plaintiff has not moved for specific relief in connection with the Company's projects in Puerto Rico. Threatened Litigation Claims by Cheryl Ray. Ms. Ray is the surviving spouse of Herbert Ray, a founding member of IMSI. Upon Herbert's death, Ms. Ray received 2,000,000 IMSI shares. In January 1999, Ms. Ray agreed to exchange her IMSI shares for Eagle Shares. Ms. Ray alleges that in June 2000, Anthony D'Amato, then President and CEO of Eagle, informed her that her original IMSI shares were being cancelled and that there had been insufficient consideration for the 1999 stock exchange. According to Ms. Ray, she then agreed to return all but 500,000 common shares. Ms. Ray now alleges that she was defrauded by Mr. D'Amato and Eagle. In November 2001, she issued a demand letter for $2,500,000, or the value of her original shares. In February 2002, Ms. Ray threatened legal action. 17. Related Party During the years ended December 31, 2002 and 2001, the Transactions Company issued 74,667 and 532,472 shares of common stock to its president and chief executive officer for services and or payment on notes payable, respectively. The Company operates in China while holding additional licenses for Mexico, India, Puerto Rico and Europe pursuant to five (5) licensing agreements with Integrated Masonry Systems International, Inc. (IMSI). The Company owns thirty-eight percent (38%) of the issued and outstanding shares of IMSI. -------------------------------------------------------------------------------- F-33 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 17. Related Party During the period commencing October 2000 to July 2001, Transactions Mr. D'Amato converted loans in the amount of $2,397,416 Continued to the Company into 789,879 shares of restricted common stock. On January 26, 2001, the Company's Board of Directors approved a 1-for-6 reverse stock split of the Company's common stock effective February 5, 2001. During the period ended December 31, 2001, primarily in July 2001, Meyer A. Berman and affiliates of Meyer A. Berman, Chairman of the Board of Directors, loaned the Company a total of $3,340,000. In addition, Mr. Berman personally and through various entities controlled by Mr. Berman made various short-term advances to the Company through-out 2002 and 2001 which as of December 31, 2002 and 2001 totaled approximately $6,700,000 and $1,380,000. During the period commencing January 1, 2003 through June 30, 2003, Meyer A. Berman and affiliates of Mr. Berman loaned the Company an additional approximate net amount of $900,000. In February 2002, Andy Berman and Abby Berman, children of Meyer A. Berman, loaned the Company a total net amount of $240,000. During May 2002, Mr. Berman contributed $310,000 of capital to the Company. This sum represents imputable short swing profits and proceeds of sales of the Company's stock by M. A. Berman and affiliates as a source of working funds given to the Company to support operational needs during the second quarter of 2002. Pursuant to Section 16 (b) of the Securities Exchange Act, such imputed profits are irrevocably committed to the Company by Berman. These transactions are the subject of litigation. During the period ended December 31, 2001, the Company had unsecured advanced receivables in the aggregate amount of $934,645 from its former Chairman and CEO, Anthony D'Amato. In February 2002, Don Pollock, an executive officer and director claims to have loaned the Company $40,000. In April 2002, Martin Shubik, a former director, loaned the Company $30,000. In May 2002, the Company assigned all of its interest in Business Dimensions, Inc. to Don Pollock, an officer and director of the Company. As a result of the Company's investigation in connection with the restatement of its 2000 and 2001 financials, the Company believes that there may be third parties to whom Anthony D'Amato, the Company's former Chairman and CEO, has obligated, or made representations purporting to obligate, the Company, or to issue equity in the Company without the knowledge or authorization of the Company's Board of Directors. The Company will continue to investigate and determine the validity of any such third party claims on a case by case basis. At the time of this filing, the Company cannot determine the financial impact, if any, to the Company as a result of Mr. D'Amato's actions. -------------------------------------------------------------------------------- F-34 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 18. Fair Value of The Company's financial instruments consist of cash, Financial receivables, payables and notes payable. The carrying Instruments amount of cash, receivables and payables approximates fair value because of the short-term nature of these items. The carrying amount of the notes payable approximates fair value as the individual borrowings bear interest at floating market interest rates in aggregate. 19. Segment The Company operates in the following business segments: Reporting block and wallsystems, block equipment, real estate development, and security doors.

20. Recent In April 2002, the FASB issued SFAS No. 145, "Rescission Accounting of FASB Statements No. 4, 44, and 64, Amendment of SFAS Pronounce- No. 13, and Technical Corrections." This Statement ments amends existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This statement became effective on May 1, 2003 and does not have a material impact on the Company's operating results or financial position. In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." The disclosure requirements of FIN 45 were effective for financial statements of interim or annual periods ending after December 15, 2002 and did not have a material impact on the Company's consolidated financial statements. -------------------------------------------------------------------------------- F-35 EAGLE BUILDING TECHNOLOGIES, INC. Notes to Consolidated Financial Statements Continued -------------------------------------------------------------------------------- 20. Recent In November 2002, the Emerging Issues Task Force Accounting ("EITF") reached a consensus on Issue No. 00-21, Pronounce- "Revenue Arrangements with Multiple Deliverables." EITF ments Issue No. 00-21 provides guidance on how to account for Continued arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of this consensus is not expected to have a material impact on the Company's consolidated financial statements. In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure-an amendment of FASB Statement No. 123." This Statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This statement became effective on December 15, 2002 and does not have a material impact on the Company's operating results or financial position. In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities." FIN 46 requires the Company to consolidate a variable interest entity if it is subjected to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns, or both. The Company does not believe it has any interests in variable interest entities and, accordingly does not expect the adoption of FIN 46 to have a material impact on the consolidated financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures in its balance sheet certain financial instruments with characteristics of both liabilities and equity. It is effective for such financial instruments entered into after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company is currently evaluating the effect of SFAS No. 150 on its financial Statements. -------------------------------------------------------------------------------- F-36

EAGLE BUILDING TECHNOLOGIES INC 10-K